By Dave Michaels, Liz Hoffman and Bradley Hope
Goldman Sachs Group Inc. will pay about $2.8 billion and admit
wrongdoing to end a bribery probe that stretched from Southeast
Asia to Hollywood and reinforced a reputation for scandal that the
Wall Street firm has spent years trying to shed.
The settlement with the Justice Department, expected as soon as
this week, would resolve an investigation into Goldman's work for a
corrupt Malaysian government fund known as 1MDB, people familiar
with the matter said. Prosecutors have accused an international
cast of characters -- including two 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.
The settlement caps one of the biggest stains in Goldman's
151-year history. All in, the 1MDB scandal will cost the firm more
than $5 billion to resolve, about two-thirds of a year's profits.
But Goldman will avoid the harshest sanctions that prosecutors had
sought and has already accounted for the penalties in its financial
reports to shareholders. Its shares rose 1.1% Tuesday.
Under the deal ironed out in recent days with the Justice
Department, Goldman will pay a roughly $2.2 billion penalty and
give up about $600 million it earned in fees from its work for
1MDB, people familiar with the matter said. In July, the bank
agreed to pay the Malaysian government at least $2.5 billion to
resolve a parallel investigation there.
A Goldman subsidiary tied to the misconduct in Asia is expected
to plead guilty but the parent company won't face prosecution, the
people said, avoiding 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.
The bank will also escape without a government-appointed monitor
to oversee its compliance department, which The Wall Street Journal
reported had earlier been a priority for prosecutors. Bloomberg
News earlier reported that a settlement was imminent.
The 1MDB scandal has dogged Goldman's chief executive, David
Solomon, who took over in 2018, as he tried to push the bank in
profitable new directions. And to the firm's critics on Wall Street
and in Washington, it reinforced the bank's reputation as a
money-spinner willing to serve even unscrupulous clients if the
fees were good enough.
It is an image Goldman has worked to shed since the 2008
financial crisis, when it was a central player in the mortgage
meltdown and paid $550 million to settle criminal allegations that
it duped investors about a particularly noxious bond. That episode
tarnished the firm's reputation and cast a long shadow over the
tenure of its then-CEO, Lloyd Blankfein.
Since then Goldman has sought to reinvent itself as a softer
place. It launched a Main Street bank and an institute to support
small businesses. When market volatility this spring caught its
trading clients wrong-sided and triggered thousands of margin
calls, the firm ordered its traders to take a more forgiving
The 1MDB scandal shows that its past can't be so easily outrun.
While the conduct is years old, it occurred in the division that
Mr. Solomon ran at the time. Both Messrs. Solomon and Blankfein,
along with other current and former top executives, still face a
potential clawback of past bonuses pending a resolution of the
Goldman began courting Malaysian officials more than a decade
ago, as the 2008 crisis was crimping earnings back in the U.S. The
Asian country had just launched a government fund to spur economic
development, called 1 Malaysia Development Bhd., or 1MDB, and
Goldman in 2012 and 2013 helped sell $6.5 billion in bonds for the
Most of that money 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 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 for years blamed the 1MDB scandal on a pair of senior
bankers who were criminally charged in the matter, Timothy Leissner
and Roger Ng. When the scandal began to unravel in 2015, Goldman
defended itself, saying the deals were vetted by internal
committees and that the bank paid appropriately for the risks it
took. Prosecutors have acknowledged that Messrs. Leissner and Ng
tried to hide the worst of their alleged wrongdoing from
Critics have said that the fees Goldman earned from 1MDB, which
were far higher than is typical for the kind of work it did, should
have been a warning sign that something wasn't right. In any event,
Goldman was hungry for the kind of deals Messrs. Leissner and Ng
were drumming up: A 1MDB bond deal in 2012 won one of Goldman's
most prestigious internal awards, praised for its "spirit of
creativity and entrepreneurial thinking."
"This case is a modern twist on the oldest and most destructive
form of criminality, individuals who have power using their
position in society for purposes of evil and greed rather than for
good," said William McMurry, who retired from the FBI this year to
join the firm 5 Stones Intelligence after helping to oversee the
1MDB investigation since 2015.
Mr. Leissner, the former head of Goldman's Southeast Asia
business, pleaded guilty in 2018 to his role in the scandal and is
scheduled to be sentenced in January.
Mr. Leissner received more than $200 million from 1MDB and paid
bribes to government officials, including gifts of jewelry for
Malaysia's then-first lady. He agreed to forfeit $43.7 million and
has been cooperating with the U.S. government.
Mr. Ng has pleaded not guilty and is awaiting trial. He was
extradited to the U.S. from Malaysia last year.
Write to Dave Michaels at firstname.lastname@example.org, Liz Hoffman at
email@example.com and Bradley Hope at firstname.lastname@example.org
(END) Dow Jones Newswires
October 20, 2020 17:31 ET (21:31 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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