Goldman Sachs has reached a $3.9 billion settlement deal with Malaysia over its role in the massive 1MDB financial scandal, officials said Friday.
The banking giant agreed to pay $2.5 billion in cash and guaranteed the recovery of at least $1.4 billion in assets stemming from three bond sales tied to the embezzlement scam, in which party-boy financier Jho Low absconded with millions of dollars, throwing lavish parties with celebrities like Paris Hilton and Leonardo DiCaprio and even bankrolling Martin Scorsese’s flick “The Wolf of Wall Street.”
The Malaysian government will also drop all pending criminal charges against Goldman and won’t try to prosecute any more of its subsidiaries or employees, the bank said in a statement.
“This settlement represents assets that rightfully belong to the Malaysian people,” Malaysian finance minister Tengku Dato’ Sri Zafrul Aziz said in a statement. “We are confident that we are securing more money from Goldman Sachs compared to previous attempts, which were far below expectations.”
Despite the enormous price tag, Wall Street analysts were relieved that Goldman is moving decisively to put the 1MDB scandal behind it. The ordeal has hung over Goldman for almost four years, and it’s weighed on their financial results as two consecutive CEOs have been forced to sock away an estimated $2.2 billion to $3 billion in provisions to pay for legal fees and potential fines.
That pile of cash will help the firm pay Malaysian authorities, but it will likely wipe out much of Goldman’s profits from a surprisingly strong quarter announced just last week.
“Conceptually, [Goldman] may be paying an extra “time premium” to get this matter resolved,” Wells Fargo analyst Mike Mayo wrote in a note Friday morning. “Which, to us, is still worth it and would be below the worst investor estimates of $10bn.”
Still, settling with Malaysia now pushes up the timeline for the US Department of Justice to fine Goldman for its 1MDB activities. With political winds blowing in the direction of Democrats taking back the White House and perhaps even the Senate in November, taking its lumps from a more Wall Street-friendly administration in 2020 is worth paying out now to save potentially billions more if the settlement had dragged on into 2021.
“Today’s settlement is an important step towards putting the 1MDB matter behind us and will help enable the Malaysian government to move forward with additional recovery efforts and to execute on its economic priorities,” Goldman said. “There are important lessons to be learned from this situation, and we must be self-critical to ensure that we only improve from the experience.”
Malaysian prosecutors had accused three Goldman units of misleading investors about the bond sales that raised $6.5 billion for 1MDB — a state development fund formally known as 1Malaysia Development Berhad — and netted the bank about $600 million in fees.
The US Justice Department has said some $4.5 billion — including some of the money Goldman helped raise — was looted from 1MDB by people including playboy financier Jho Low, who is still on the lam.
Goldman has also reportedly held settlement talks with federal prosecutors that could see it pay $2 billion over its role in the scandal and have one of its units plead guilty under American bribery laws.
The bank has already seen some former employees face punishment over the alleged scam. Senior banker Tim Leissner has pleaded guilty and been barred by the feds from working in the industry. News reports have indicated that another ex-banker, Roger Ng, is working on a plea deal in the US, but his lawyer, Marc Agnifilo, denied that such discussions have taken place. A trial in Ng’s case is set for January 2021, Agnifilo said.
The Federal Reserve also banned ex-Goldman partner Andrea Vella, who played a big role in the bank’s Asian operations, from the banking industry in February over the 1MDB deals.
Goldman shares fell 0.8 percent on Friday to close at $201.47.
With Post wires