Malaysia filed charges against Goldman for its role in the 1MDB fraud, and in the United States, the bank’s lawyers held talks with federal prosecutors.
Since becoming a symbol of Wall Street greed during the financial crisis, Goldman Sachs has tried to recast its image as an investment bank that cares as much about ethics as it does its bottom line.
Now, that makeover is being undone by the bank’s work for an obscure investment fund in Malaysia, which has entangled it in civil and criminal investigations around the world. Goldman recently received subpoenas from New York regulators, held talks with federal prosecutors and is likely to incur billions of dollars in penalties. It is one of the most serious crises in the bank’s 149-year history.
The international legal assault on Goldman intensified on Monday, with prosecutors in Malaysia filing criminal charges against the bank, accusing it of defrauding investors by raising more than $6 billion for the fund, which was supposed to benefit the Malaysian public but ended up enriching Goldman and others.
And that is just the start of the bank’s troubles.
Lawyers for Goldman met this fall with federal prosecutors in what appeared to be an early step in settlement negotiations, according to three people familiar with those talks. Two of its senior employees have already been charged.
The bank and some of its employees recently received subpoenas from regulators in New York, who are investigating the circumstances in which Goldman netted about $600 million in fees through its no-bid work for the fund, 1Malaysia Development Berhad, or 1MDB, according to two people with knowledge of the subpoenas.
1MDB was supposed to finance infrastructure and other development projects to benefit the Malaysian public.
Instead, according to prosecutors in the United States and Malaysia, it became a font of corruption for people close to Najib Razak, who was then the prime minister. Goldman helped the fund raise $6.5 billion from investors in 2012 and 2013. The money paid for an enormous spending spree by executives and public officials that included the purchases of diamonds, Birkin bags, Picassos and a Monet, as well as financing for the Hollywood film “The Wolf of Wall Street.”
Michael DuVally, a Goldman spokesman, said the bank would fight the Malaysian charges, which he said “do not affect our ability to conduct our current business globally.” He said that officials with 1MDB and the Malaysian government lied to Goldman about how they planned to use the money that the bank raised.
Goldman has previously said it was cooperating with law enforcement and that it might incur “significant fines” from investigations into 1MDB in the United States and elsewhere.
