By Liz Hoffman and Dave Michaels
Goldman Sachs Group Inc. on Thursday admitted it broke U.S.
corruption laws, agreed to pay billions of dollars to global
regulators and financially punished its top executives, resolving
one of the biggest scandals in Wall Street history.
The bank will pay nearly $3 billion to officials in four
countries to end a yearslong investigation into its dealings with a
Malaysian investment fund at the heart of a global bribery ring.
Its check to the U.S. government is the largest such fine ever
All told, Goldman's dealings with the fund, known as 1MDB, will
cost it more than $5 billion in financial penalties and a
reputational black eye. The fund launched a decade ago with grand
plans to jump-start the Malaysian economy, but instead, prosecutors
say, it became a piggy bank for government officials, investment
bankers and an international cast of high-rolling hangers-on.
In New York federal court Thursday, a Goldman subsidiary pleaded
guilty to conspiring to violate antibribery laws. A deal cut with
authorities allows the bank itself to avoid prosecution on the same
charge, which could have crippled its business and further sullied
a reputation the bank has worked hard to shine up in recent
As a salve to shareholders, Goldman said Thursday it would cut
bonuses for Chief Executive David Solomon and three top lieutenants
and claw back millions of dollars in past pay from his predecessor,
Lloyd Blankfein, and other departed executives. "We must always
remain open to improvement, learn from our mistakes and accept the
consequences when we fail," Mr. Solomon said in a statement.
The Justice Department on Thursday laid out a case it has spent
years building, detailing a corruption ring that stretched from
Southeast Asia to Hollywood and passed through one of Wall Street's
titans. Prosecutors allege that billions of dollars was stolen from
1MDB and more than $1.6 billion in bribes were paid -- the most
ever in a U.S. corruption case -- to government officials in
Malaysia and the Middle East.
Two Goldman bankers have been criminally charged in the scandal.
Prosecutors alleged that senior executives at the bank, enamored by
the fees that poured in from 1MDB, ignored warning signs of
"This case is also about the way our American financial
institutions conduct business," said Seth DuCharme, the acting U.S.
Attorney in Brooklyn. "It's about reminding people about where the
boundaries to fair play are."
Goldman will pay $2.9 billion to the U.S. Justice Department and
other global regulators, on top of the $2.5 billion it agreed in
July to pay Malaysia's government. The Federal Reserve, Goldman's
main financial regulator, levied its own fine and said the bank had
failed to supervise its employees.
In 2012 and 2013, Goldman helped raise $6.5 billion for 1MDB by
selling bonds to investors. Prosecutors say much of that money was
stolen by an adviser to the fund named Jho Low, aided by the two
Goldman bankers and associates in the Malaysian and Emirati
governments. Nearly $700 million ended up in the bank account of
the Malaysia's prime minister, who was later convicted of abuse of
Goldman had long portrayed the bankers -- Timothy Leissner, who
has pleaded guilty and is awaiting sentencing, and Roger Ng, who
has maintained his innocence and is set to stand trial next year --
as rogue employees who hid their activities and Mr. Low's
involvement from their bosses. Mr. Low, who has denied the
allegations against him, is on the run from U.S. law
The Justice Department said in court papers that Goldman's
compliance staff accepted Mr. Leissner's statements and ignored red
flags. After articles in The Wall Street Journal and other
publications raised questions about the 1MDB deals, Goldman failed
to investigate the bond deals or why Mr. Low, who had already been
rejected by the bank as a private client, was involved, the Justice
Company officials talked about alleged bribes on recorded
Goldman lines, including one conversation in which an employee told
an unnamed senior executive that he was disturbed by information
that a deal involving 1MDB was being delayed because a participant
was seeking a bribe, court papers say. "What's disturbing about
that? It's nothing new, is it?" the senior executive replied,
according to the Justice Department.
As officials built their case against Goldman last year, the
bank withheld deferred pay that was owed to top executives and
reserved the right to reduce bonuses going forward. On Thursday it
acted on that warning, taking a total of $174 million from
executives past and present.
Four current executives -- Mr. Solomon, President John Waldron,
Chief Financial Officer Stephen Scherr and the head of Goldman's
international business, Richard Gnodde -- will forfeit $31 million
in pay this year, the bank said, about one-third of what they were
paid in 2019.
The firm is also clawing back bonuses previously paid to Mr.
Blankfein, former CFO David Viniar, and two senior executives at
the time of the 1MDB deals who have since retired. It is in also
discussions to recoup money from Gary Cohn, a former executive
whose future bonuses were paid out when he joined the Trump
administration in 2017, a person familiar with the matter said.
(Mr. Cohn left his role as White House economic adviser the next
The financial moves are a concession to shareholders who will
shoulder the financial cost of the scandal and employees whose own
bonuses this year are likely to shrink because of it. They also are
an admission of sorts that the crux of the government's case
against Goldman -- that it failed to properly oversee its senior
bankers and fostered a win-at-all-cost culture -- has some
Bonuses are companies' handiest tool to reward and punish
executives. Wells Fargo & Co. withheld $135 million from two
top executives in the wake of the firm's fake-accounts scandal.
The moves could help placate Goldman's partners, who have been
griping about declining pay, particularly after Mr. Solomon
received a substantial raise earlier this year.
Critics of the government's efforts to rein in Wall Street
excesses may question why the bank itself wasn't forced to plead
guilty, despite its admissions of wrongdoing.
Because firmwide indictments have the potential to cripple a
company's ability to operate, federal prosecutors carefully
consider how and when to charge a corporation. Still, some big
banks, including JPMorgan Chase & Co., have weathered guilty
pleas in recent years.
Brian Rabbitt, the acting assistant attorney general, on
Thursday called the outcome "a serious and significant resolution
that imposes serious and significant consequences."
Write to Liz Hoffman at email@example.com and Dave Michaels at
(END) Dow Jones Newswires
October 22, 2020 16:02 ET (20:02 GMT)
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