Yesterday, The Wall Street Journal published their latest investigative story on the scandal perpetrated by 1MDB. It seems the US authorities are investigating Goldman Sachs for misleading the bond buyers when the bank sold bonds which were issued by 1MDB (total value of USD6.5 billion or RM26 billion).
As part of an inquiry being examined by a U.S. grand jury, investigators are trying to determine if Goldman’s employees had reason to believe that some of the proceeds from bond deals done for the fund, 1Malaysia Development Bhd, known as 1MDB, weren’t being used for their intended purpose, the person familiar with the matter said. Federal authorities also are exploring whether Goldman’s hiring practices in the region violated U.S. anticorruption laws, the person said.
Goldman advised the fund on three acquisitions and arranged the sale of three bonds valued at a total of $6.5 billion that brought in $650 million for the firm. [that’s 10% commission paid by Malaysians]
Goldman’s biggest, and last, transaction with 1MDB came in early 2013 when it sold $3 billion in bonds that the fund said would finance a real-estate-development project in the center of Kuala Lumpur designed to spur economic development. [soon afterwards, the Malaysian PM received nearly USD700 million into his personal bank accounts]
1MDB officials directed the Wall Street firm to wire the proceeds from the deal to the fund’s account at BSI SA, a small Swiss private bank, according to people familiar with the matter.
Private banks don’t typically receive transfers of that size, and the unusual step caught the attention of lawyers at Linklaters, Goldman’s legal counsel on the transactions. Kevin Wong, a partner at the law firm, sent a note to bankers at Goldman alerting them to the fact that the money was being sent to a private bank, according to a person familiar with the matter.
Goldman executives approved the transaction and believed they werecontractually obligated to send the money to the account their client had specified, according to people familiar with the matter. Linklaters ultimately signed off on the transaction, said the person.
Goldman underwrote the entire offering, buying all $3 billion up front at a slight discount to the face value. It then resold the securities to other investors at higher prices. Goldman made nearly $300 million in fees from the bond sale, an outsize figure that raised eyebrows across Wall Street and compelled Goldman to tell its client how much it stood to earn on the deal ahead of time.
The bond ostensibly was meant to fund the construction of a new financial center in Kuala Lumpur to be named after the father of Malaysian Prime Minister Najib Razak, but little building has occurred. 1MDB moved half of the money raised into overseas mutual funds and used the remainder to pay down debt and for working capital, according to its financial accounts. [in the end, 1MDB built nothing and some assets (Bandar Malaysia land and IPPs) had to be sold in order to pay the debts]
Multi layered companies used for the RM2.6 billion ‘donation’ fiasco. Predictably 1MDB maintained they never directly bank in money into Najib Razak’s personal bank accounts.
If 1MDB had not misused the money raised through debts, they could have built Bandar Malaysia and TRX without resorting to sell their land to foreigners. Sadly, Malaysians did not benefit anything from the sale. Money from the sale will be used to pay off debts and to make matters worse, Malaysians lost sovereignty over the land they used to own.