By WSJ staff 

Hong Kong's financial regulator fined Goldman Sachs Group Inc. $350 million, one in a series of penalties the investment bank faces for its role raising billions of dollars for a corrupt Malaysian sovereign-wealth fund.

The fine comes as the Wall Street bank is finalizing a settlement with the U.S. Department of Justice in which it will pay about $2.8 billion and admit wrongdoing to end a bribery probe related to 1Malaysia Development Bhd., or 1MDB, according to people familiar with the matter. In July, the bank agreed to pay the Malaysian government at least $2.5 billion to resolve a parallel investigation there.

The fines and settlements aim to bring to a close one of the worst scandals in the bank's history. It made outsize profits in helping 1MDB raise $6.5 billion of bonds in 2012 and 2013.

Prosecutors in the U.S. have accused an international cast of characters -- including two former Goldman bankers -- of embezzling billions of dollars from the fund, and U.S. officials had been preparing a case that the bank ignored signs of fraud in pursuit of fees.

Taken together, the 1MDB scandal will cost Goldman more than $5 billion, about two-thirds of a year's profits. Goldman shareholders had long expected substantial penalties.

In Thursday's action, Hong Kong's Securities and Futures Commission said it is fining Goldman Sachs's Asia unit for what it described as "serious regulatory failures" related to the misappropriation of $2.6 billion from 1MDB bond offerings. It said Hong Kong is Goldman's regional compliance and control hub, overseeing deals in the region.

The SFC said Goldman Sachs Asia lacked adequate controls to monitor staff and detect misconduct, and allowed the 1MDB bond offerings to proceed when numerous red flags surrounding the offerings had not been properly scrutinized.

The SFC said that Goldman generated more revenue from three 1MDB bond sales -- $567 million -- that it did arranging 213 other bonds across Asia between 2011 and 2015.

The Goldman Asia unit's "fitness and properness to remain a licensed corporation has been called into question," said the SFC statement. It noted that Goldman had made improvements in its internal audit function to help bring the matter to a close. The SFC said Goldman accepted its findings.

Goldman said it would release a statement on the matter in due course.

A decade ago, Goldman looked to Malaysia as a place to do business when U.S. and European markets suffered under the 2008 financial crisis. The Asian country had just launched the 1MDB government fund to spur economic development.

Most of the money Goldman helped raise went missing and was allegedly stolen by an adviser to the fund, Jho Low, and his associates, according to prosecutors. Nearly $700 million ended up in the bank account of the country's prime minister, who was later convicted of abuse of power for his role in the scandal.

Mr. Low, who has denied wrongdoing, allegedly spent much of the rest on luxury condos in New York and London, fine art and a giant yacht, throwing huge parties in Las Vegas and bankrolling the film "The Wolf of Wall Street."

Goldman's settlements allow it to resolve the matter without some of the harsher punishments regulators sought. In the U.S. case a Goldman subsidiary tied to the misconduct in Asia is expected to plead guilty but the parent company won't face prosecution, the people familiar said. This avoids a felony mark that could have crippled its ability to do business. The arrangement, known as a deferred prosecution agreement, would allow officials to pursue charges later if Goldman errs again.


(END) Dow Jones Newswires

October 22, 2020 09:08 ET (13:08 GMT)

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