A New York City police pension fund is suing Goldman Sachs to obtain corporate records to determine whether the firm violated its duties in connection with a Malaysian fraud and money-laundering scandal. The case has entangled Malaysian government-owned investment fund 1Malaysia Development Bhd, better known as 1MDB.
The complaint was filed with The Delaware Court of Chancery on behalf of The Sergeants Benevolent Association Annuity Fund. It seeks to determine whether the firm violated fiduciary duties, duties of loyalty, or other duties in connection with the fraud and money-laundering plan.
An estimated $4.5 billion was allegedly misappropriated and fraudulently diverted from 1MDB, and the pension fund said that “the scandal has the potential to result in significant fines and penalties” for Goldman Sachs.
Goldman Sachs and its senior officials arranged a series of bond offerings for 1MDB in 2012 and 2013 that raised a total of $6.5 billion and earned the company “unusually outsized fees” of nearly $600 million, the suit contends.
“As it would be later revealed, however, the company’s involvement in these bond offerings were at the center of a wide-ranging fraud and money-laundering scheme that may amount to one of the largest heists in history,” said the complaint, “and certainly the worst-ever fleecing of a sovereign wealth fund.”
The complaint also said that at least $2.7 billion was misappropriated for purposes of paying bribes and kickbacks to foreign officials, “ensuring Goldman Sachs continued to benefit from its business with 1MDB, and personally enriching the individuals involved.”
As a Goldman Sachs stockholder, the pension fund said it is seeking to enforce its rights to inspect certain corporate books and records of Goldman Sachs. In May it sent a request to Goldman Sachs’s general counsel for documents related to 1MDB. Despite receiving 117 documents from the firm, the fund said those documents “fall far short” of what they were looking for. The fund is asking the court to enter a summary order directing Goldman Sachs to produce the requested books and records for inspection.
The complaint said that in early 2009 two Goldman Sachs managing directors, Tim Leissner and Roger Ng, persuaded officials in the oil-rich Malaysian state of Terengganu to establish a sovereign wealth fund known as the Terengganu Investment Authority (TIA). Later that year, the two worked closely with Malaysian businessperson Low Taek Jho to help TIA raise approximately $1.4 billion.
Months later, newly elected Malaysian Prime Minister Najib Razak, took over TIA and renamed it 1Malaysia Development Bhd. As a sovereign wealth fund, 1MDB said it sought to finance infrastructure and economic development around the country.
“From 1MDB’s inception, Leissner and Ng, using Low’s close personal relationships with Najib and other Malaysian government officials, played a central role in the Goldman Sach’s relationship with 1MDB,” said the complaint.
The complaint said that about the same time, Goldman Sachs rejected Low’s application for a private wealth management account with the company’s private bank because it could not validate the source of his wealth.
“Despite the questions about Low’s financial history, Goldman Sachs continued to use Low as an intermediary between it and Malaysian officials,” said the complaint.
Then-Goldman CEO Lloyd Blankfein personally met with Low and Prime Minister Najib in November of 2009, purportedly to discuss a potential relationship between Goldman Sachs and 1MDB. Blankfein met with Low at least two more times, in 2012 and 2013. As a result, 1MDB engaged Goldman Sachs as underwriter and arranger in three separate bond offerings, which raised a total of $6.5 billion.
But beginning in 2015, news outlets began reporting on the extent of the misconduct surrounding the 1MDB funds, and the sovereign wealth fund became the subject of international criminal and regulatory investigations for fraud and money laundering. In July of that year, The Wall Street Journal reported that Malaysian investigators had tracked nearly $700 million in deposits to Najib’s personal bank accounts.
The complaint says Goldman Sachs’s former president Gary Cohn knew of and personally supported the 1MDB deals, despite the objections of officials like David Ryan, who was then president of Goldman Sachs Asia-Pacific Ex-Japan. It said Ryan conveyed his concerns after visiting with 1MDB officials, but that he was effectively sidelined from the deals and left the company within a year.
“The backing of a domineering and powerful personality like Cohn afforded significant cover to those involved in the 1MDB business,” said the complaint, “and drowned out the voices of those who were uncomfortable with the plans to raise billions of dollars for the fund.”