By Dave Michaels, Liz Hoffman and Bradley Hope
Goldman Sachs Group Inc. will pay the U.S. government about $2.8
billion and admit wrongdoing in a Malaysian bribery scandal,
settling charges stemming from its work with a corrupt government
A Goldman subsidiary tied to the misconduct in Asia is expected
to plead guilty this week, according to people familiar with the
matter. The bank's parent company will admit fault but won't face
prosecution under the agreement, the people said, avoiding a guilty
plea that could have crippled its ability to do business.
The arrangement, known as a deferred prosecution agreement,
would allow the U.S. Justice Department to pursue charges later if
Goldman errs again during a specified time period.
The settlement caps a yearslong scandal that stretched from
Southeast Asia to Hollywood, the Middle East, Las Vegas and London.
In July, Goldman agreed to pay Malaysia $2.5 billion for its role
in the alleged theft of billions of dollars from the investment
fund, known as 1MDB.
The deal with the Justice Department calls for Goldman to pay a
penalty of about $2.2 billion plus about $600 million in ill-gotten
gains, although the firm will be able to offset some of that with
fines paid to other authorities and agencies, the people said.
The deal won't require Goldman to install a compliance monitor,
the people said, a costly undertaking that law enforcement
officials sometimes order to fix corporate misconduct. These
arrangements can last for years: Goldman is still making quarterly
updates to the monitor it was forced to hire in the wake of the
2008 mortgage crisis. The Wall Street Journal reported late last
year that prosecutors were pushing for a monitor in the 1MDB
All in, the 1MDB scandal will cost Goldman more than $5 billion,
wiping out about two-thirds of a year's profits. But the firm will
avoid the harshest penalties that prosecutors have sought, and it
has already accounted for the cost in its financial reports to
Bloomberg News earlier reported that the settlement was
The 1MDB scandal was a distraction for Goldman as its new chief
executive, David Solomon, tried to push the bank in profitable new
directions. And to Goldman's critics, it reinforced the bank's
reputation as a ruthless money-spinner willing to serve
unscrupulous clients in pursuit of fees.
It is an image Goldman has worked to shed since the 2008
financial crisis, when it paid $550 million to settle criminal
allegations that it duped investors about a particularly noxious
mortgage bond. That episode tarnished the firm's reputation and
cast a long shadow over the tenure of its then-CEO, Lloyd
Since then Goldman has sought to reinvent itself as a friendlier
place. It opened a Main Street bank, introducing itself to a broad
swath of the public. It launched a lobbying and education effort to
small businesses and entrepreneurs. And when market volatility this
spring caught trading clients wrong-sided and triggered thousands
of margin calls, it ordered its traders to take a softer tack.
The 1MDB scandal, and the admissions Goldman will make as part
of a formal settlement later this week, show that its past can't be
so easily outrun. While the conduct occurred years ago, it was
centered in a division that Mr. Solomon ran at the time. Both
Messrs. Solomon and Blankfein, as well as other current and former
top executives, still face a potential clawback of bonuses they
were paid in prior years, according to regulatory filings.
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, a giant
yacht, private jet, huge parties in Las Vegas and to fund the film
"The Wolf of Wall Street."
Goldman for years blamed the 1MDB scandal on rogue employees, a
pair of senior bankers who were criminally charged in the matter
and, according to prosecutors, tried to hide the worst of their
criminal conduct from superiors. 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.
The two bankers were lauded by Goldman's top executives for
their work with 1MDB, and the first bond deal in 2012 won an
internal firmwide award. Critics have said that the size of the
fees Goldman earned from 1MDB, which were far higher than is
typical for the kind of work it did, should have been a clear
warning sign that something wasn't right.
"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.
Prosecutors investigated whether Goldman failed to supervise its
top banker on the deal, Timothy Leissner. Mr. Leissner admitted in
2018 to violating money-laundering and bribery laws in working
closely with Mr. Low to engineer the theft. Mr. Leissner received
$200 million during the scandal and paid out millions of dollars of
bribes, including in jewelry for Malaysia's then-first lady. He
agreed to forfeit $43.7 million and has been cooperating with the
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 12:22 ET (16:22 GMT)
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