Malaysian authorities filed criminal charges against Goldman Sachs on Monday, alleging the Wall Street bank was involved in a conspiracy to launder $2.7 billion from an investment fund.
The charges escalate the legal troubles facing Goldman Sachs. U.S. authorities have already filed criminal charges against former Goldman Sachs employees, but this is the first time the New York bank has been directly blamed for wrongdoing.
“Having held themselves out as the pre-eminent global adviser ... the highest standards are expected of Goldman Sachs. They have fallen far short of any standard,” Malaysian Attorney General Tommy Thomas said in a statement.
Goldman Sachs has said it is cooperating with the investigations and denied wrongdoing. “We believe these charges are misdirected and we will vigorously defend them and look forward to the opportunity to present our case," the bank said in a statement.
The company’s stock fell about 2.7 percent Monday and is down more than 30 percent this year.
After spending years attempting to build its reputation after the global financial crisis, the accusations that Goldman was involved in an multi-billion dollar fraud could shake confidence in the bank once again, industry analysts said.
“What I am watching for is contagion,” said Ken Leon, director of equity research at CFRA. “Could it be one of the regulatory agencies in Washington, a House committee in Congress? There are a lot of ways to go and Goldman can be an easy target, I just don’t think this goes away quickly.”
The case centers on 1Malaysia Development Berhad, called 1MDB, a government-controlled fund that aimed to pursue economic-development projects for Malaysia. Goldman arranged $6.5 billion in bonds for the fund in 2012 and 2013.
But according to Malaysian and U.S. authorities, Goldman secured the work with the help of bribes arranged by two former employees and others. Goldman made about $600 million in fees from the deals, “which was several times higher than the prevailing market rates and industry norms,” Thomas said in a statement.
Then billions were stolen from the fund and spent on the L’Ermitage Hotel in Beverly Hills; condominiums, penthouses and mansions in California and New York; and paintings by Vincent van Gogh and Claude Monet. U.S. authorities have also said some proceeds went to funding the production of the movie “The Wolf of Wall Street.”
Earlier this year, Jeff Sessions, then the U.S. attorney general, called the case “kleptocracy at its worst.”
Malaysia has charged Goldman Sachs with making false and misleading statements and is seeking fines “well in excess” of $3.3 billion. That would account for the $2.7 billion misappropriated from the bond sales and the $600 million in fees collected by the bank.
It also filed charges against two former Goldman Sachs employees, including Tim Leissner, Goldman’s former Southeast Asia chairman. Leissner pleaded guilty in November to U.S. charges of bribery and misappropriating 1MDB money. Leissner has yet to be sentenced in the United States and could face 10 years in prison under the charges filed in Malaysia.
Another former employee, Ng Chong Hwa, also known as Roger Ng, will be charged soon, according to Malaysian authorities. He was arrested in Malaysia in November after being charged in the United States with conspiring to violate the Foreign Corrupt Practices Act.
Goldman has sought to distance itself from the wrongdoing, characterizing Leissner and Ng as rogue employees who broke company rules. “These are guys who evaded our safeguards, and lie; stuff like that’s going to happen,” Lloyd Blankfein, Goldman’s former chief executive, said in November.
In a statement Monday, Goldman went even further to distance itself. “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,” the bank said. Under the Malaysian legal system, Goldman was not allowed to “be heard prior to the filing of these charges … which we intend to vigorously contest.”
But when Leissner pleaded guilty earlier this year, he told the judge in his case, that the IMDB deal was “very much in line of its culture of Goldman Sachs to conceal facts from certain compliance and legal employees."