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.”
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.
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.”