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Goldman Sachs, lies and 1MDB

January 22, 2019

By Aaron Patrick, 18 Jan 2019

Alex Turnbull was sitting at his desk in Goldman Sachs’ Singapore office when a colleague dropped off the paperwork for a new bond sale. “Check this out,” he told the boy-faced Harvard economics graduate.

The famed investment bank was raising $US3.5 billion ($4.87 billion) for a hot client, 1 Malaysia Development Berhad, a state-owned infrastructure investment fund.

As Turnbull, a banker in Goldman’s elite special situations unit, went through the deal on a quiet afternoon, he had a rising sense of concern. “This stinks,” he thought to himself.

While new Goldman Sachs CEO David Solomon apologised “to the Malaysian people” but didn’t concede the bank was at fault. Patrick T. Fallon

A few months later, in London, freelance journalist Clare Rewcastle Brown received the same document from a finance contact. As he talked her through the thick business jargon, Brown felt a profound shock.

“The margins were just ludicrous,” she told me this week. “It was off the scale.”

Over in Cannes, France, Wolf of Wall Street stockbroker Jordan Belfort had attended a beachside launch party a couple of years earlier for a new movie studio co-founded by the Malaysian prime minister’s stepson.

Kanye West and Jamie Foxx sang Gold Digger as a duet. There were elaborate fireworks and unlimited champagne.

“Anybody who does this has stolen money,” said Belfort, who has the experience to support his assertion. “You wouldn’t spend money you worked for like that.”

A banker, journalist and conman

If an Australian banker, a British journalist and an American conman figured out something was wrong, how come the world’s most famous investment bank didn’t?

Related: Goldman Sachs and the plunder of 1MDB By Aaron Patrick

That is the question raised by Goldman Sachs’ apology this week for facilitating the plunder of 1MDB. Five-and-a-half years after the first public report that Goldman received extravagant fees for a straight-forward bond issue, the bank has acknowledged it was part of a crime.

“It is very clear that the people of Malaysia were defrauded by many individuals, including the highest members of the Malaysian government,” said David Solomon, who oversaw his first earnings result as chief executive this week. “For Leissner’s role in that fraud, we apologise to the Malaysian people.”

Leissner is Tim Leissner, who ran the bank’s south-east Asia business at the time of the fraud. He resigned in February 2016 and, by pleading guilty to corruption, has become Goldman’s buffer against accusations that it was complicit in what has been dubbed “the largest kleptocracy case” in US history.

As recently as October, outgoing CEO Lloyd Blankfein brushed the case off as a regular business headache. “These are guys who evaded our safeguards, and lie,” he said. “Stuff like that’s going to happen.”

Miranda Kerr still has the see-through piano she was given by Jho Low, who is wanted for stealing money from 1MDB. Supplied

Can we have our money back?

The US Department of Justice alleges $US4.5 billion ($6.3 billion) is missing. This week the new Malaysian government asked Goldman Sachs for its money back.

“Don’t tell me you don’t know where the money went,” Finance Minister Lim Guan Eng said. “Goldman Sachs needs to come to terms with the facts.”

Goldman Sachs insists it did nothing wrong, and was misled by its own staff, 1MDB and the Malaysian government, none of whom told the bank the money it raised was going to be stolen. Goldman Sachs doesn’t intend to repay Malaysia a dime.

“Certain members of the former Malaysian government and 1MDB lied to Goldman Sachs, outside counsel and others about the use of proceeds from these transactions,” a spokesman said.

Clare Rewcastle Brown was placed on a terrorist watch list after exposing that Prime Minister Najib Razak’s bank account received $US681 million two days after Goldman sold a third 1MDB bond. The New York Times

Goldmans’ contact on the 1MDB deals was Jho Low. If know-your-client was practised at the bank, Low would have made for interesting compliance visits.

For his 31st birthday party, Low paid Britney Spears to jump out of a birthday cake in a skimpy gold outfit. Who knew that was possible?

Miranda’s see-through piano

Now in hiding somewhere, Low at one stage developed a deep romantic interest in Miranda Kerr. US marshals are trying to work out how to seize a see-through piano given by Low to Kerr, who was photographed lying on it playing with her phone by Harper’s Bazaar two years ago in what may be an example of the state of modern celebrity.

The 1MDB story exploded in June, 2015, when Rewcastle Brown provided documents to The Wall Street Journal that showed Prime Minister Najib Razak’s bank account received $US681 million two days after Goldman sold a third 1MDB bond. (Najib said the money wasn’t his.)

Goldman Sachs says one of its partners, Tim Leissner, pictured here with his wife, misled the bank about 1MDB. WENN / Alamy

Facing evidence it had financed a giant, lucrative fraud, Goldman Sachs should have conducted a thorough internal investigation into its complicity, Rewcastle Brown argues.

“At that stage how could Goldman Sachs not review the information?” she said. “Goldman Sachs was hoping the conventional wisdom, that Najib was holding his own and would remain in power. He would close down the inquiries and they would be off the hook.”

The peril of challenging power

The bank flat out denies any cover-up. After the Najib story broke, Goldman Sachs says it placed Leissner under surveillance and found a compromising email inadvertently sent to his work email address. Confronted with the evidence, he resigned in January, 2016.

“Since that time, we discovered other violations of our policy by Mr Leissner that we have shared with the Department of Justice and other relevant authorities,” a Goldman Sachs spokesman said. “We continue to cooperate with the DOJ in this matter.”

Despite its assertion of innocence, the bank knows it has some big legal bills coming. On Thursday, it set aside $US500 million for the cost of expected 1MDB lawsuits.

Those who raised concerns about the case feel vindicated by Goldman’s apology. It wasn’t an easy path.

Rewcastle Brown, the sister-in-law of former British prime minister Gordon Brown, was placed on a terrorist watch list by the Malaysian government, which tried to get Interpol to issue an international arrest warrant in her name. Public relations agencies were hired to attack her credibility on the internet, she said.

The head of China’s domestic security force told the Malaysians it had mounted a full surveillance operation against the Wall Street Journal reporters covering the story, Tom Wright and Bradley Hope.

Jho Low and Paris Hilton. Low was Goldman Sachs’ conduit to 1MDB. His whereabouts are unknown. Internet

Was Goldman underpaid?

Turnbull, the son of former prime minister Malcolm Turnbull, accused Goldman Sachs of leaking damaging information about his exit from the bank.

“The deal itself is pretty terrible but the fact they went as hard as they could against any critics speaks volumes about deeper cultural issues at the firm,” he said this week.

In Australia, Goldman Sachs is a pillar of the business community. It was paid $6.5 million to float Medibank Private for the federal government, was the second-ranked adviser for corporate deals last year, and proudly boasts of supporting charities.

Goldman Sachs argues the $US600 million profits from 1MDB were perfectly reasonable. Given it received slightly less than ended up in Najib’s bank account, perhaps the deal machine was underpaid.

Alex Turnbull was concerned when he realised how much his employer, Goldman Sachs, would receive for raising money for 1MDB. Supplied

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