Lawyers for two US labor union funds are demanding that Goldman Sachs investigate the investment bank’s role in the US$4.8 billion 1Malaysia Development Bhd. scandal, currently the world’s largest financial mess, and commence legal action for breach of fiduciary duty by bank officials responsible for “facilitation of bribery, money laundering and kickbacks.”
The 27-page demand letter, issued on May 7 by the Delaware-based law firm of Grant & Eisenhofer, was sent to Goldman on behalf of the Cleveland, Ohio Bakers and Teamsters Pension Fund and the Bakers and Teamsters Health and Welfare Fund, described as Goldman stockholders during the period when the Penang-born financial whiz kid Low Taek Jho worked with Malaysian Prime Minister Najib Razak to establish the state-backed investment fund.
The letter accuses current and former officers and directors of Goldman plus UK, Singapore and other subsidiaries of the investment bank of having “consciously disregarded their duties and failed to act in good faith to promote compliance with anti-money-laundering and bribery laws. These individuals and entities also include third-party participants in the scheme."
The letter also suggests that Lloyd Blankfein (above), Goldman’s CEO, and other officials at the very top of the investment bank were fully aware of irregularities in the 1MDB transactions, if not their details, and condoned them.
As at least two books and the New York Times, the Wall Street Journal, Sarawak Report, the Asia Sentinel and other publications have reported in detail, the theft started virtually from the time Jho Low, as he became known as a connoisseur of Broadway blondes and Cristal champagne, induced Najib to set up the fund. It is almost as if there was never any intention to use the money for a legitimate purpose. The US Justice Department has called it the biggest kleptocracy case in history, with more than US$1 billion in stolen assets recovered so far and billions more to be reclaimed.
Najib and his wife, Rosmah Mansor, have been arrested although both remain free. Jho Low is nowhere to be found. He is believed to be in China with plenty of remaining funds despite the confiscation and sale of his 91-meter yacht Equanimity.
Goldman Sachs is already under considerable fire over its alleged part in the scandal, with two class action suits filed in New York in November 2018 over allegations the bank failed to disclose its dealings in what was termed a fraud and money laundering scheme to investors who bought shares between 2014 and 2018.
In addition, Malaysian prosecutors have filed charges against the bank and two former officials, Tim Leissner and Roger Ng Chong Hwa, who are accused of helping to misappropriate US$2.7 billion (£2.1 billion), bribe officials and give false statements when helping to issue bonds. Singapore has also initiated a criminal investigation into Goldman’s activities in connection with 1MDB.
Goldman, however, has consistently denied any wrongdoing and insists it was lied to about the use of the proceeds of the bond sale.
According to the Teamster demand letter, Blankfein gave Southeast Asia Chairman Leissner “virtually a free hand” with his superiors “allowing him a very long leash.” With Leissner steering Goldman’s operations, the investment bank helped to raise more than US$6.5 billion through three bond sales, charging almost a whopping US$600 million in fees, far in excess of normal practice, and setting bond interest rates higher than market standards.
1MDB, according to the letter, “served as a cash cow for political support in favor of Najib and his party. Leissner and Ng were well aware of Low’s connection to the Prime Minister, which was not a secret. Like Low, Leissner and Ng sought to curry favor with Najib.‘
Much of the details of the letter are taken from accounts that are well known, based on public records as well as records obtained by the stockholders. Much of it is taken from revelations in “The Billion Dollar Whale” by Wall Street Journal reporters Tom Wright and Bradley Hope.
Each of the bond issuances engineered by Goldman were done quietly, “contained terms unfavorable to IMDB, resulted in gargantuan fees for Goldman, and ended with significant amounts of the bond proceeds diverted to shell accounts associated with private individuals,” according to the letter. “In return for its efforts, Goldman pocketed $593 million in just over 12 months, amounting to 9 percent of the total bond proceeds—fees far higher than firms typically earn in such transactions.”
The labor unions demand that it is the Goldman board’s “obligation to avoid wasting corporate assets, [which] compels the board to pursue all remedies against persons such as current and former Goldman officers and board members, who through their bad faith misconduct, bad faith inaction, disloyal behavior and/or their recklessness or negligence permitted Goldman to facilitate disastrous bond deals that proved ruinous for Malaysia’s sovereign wealth fund while enriching Low, Najib, and their friends and political supporters, as well as Goldman’s own Leissner and Ng.”
Goldman, the labor union funds allege, “now expects to expend US$1.9 billion more than it had reserved for legal matters as a result of the scandal, to say nothing of the incalculable reputational harm it caused.
They demand that an investigation into the 1MDB affair “must be led by independent and disinterested directors with the assistance of independent outside legal counsel. Following the investigation, the stockholders demand that Goldman commence appropriate legal action against current and former directors, officers, and employees, as well as third parties, identified as being responsible for the mismanagement and other related misconduct described herein.
The legal proceedings should bring claims for breaches of the fiduciary duties of loyalty and of care; aiding and abetting those breaches; unjust enrichment; RICO claims, and other violations of the law.
The letter warns of the possibility that the relevant statutes of limitations may run before proceedings can be started and that the board should secure tolling agreements, waivers of the right to claim dismissal of litigation because of the expiry of statutes of limitations from all potential defendants. The union stockholders demand that the board thus immediately take all necessary steps to clean up the affair and pursue claims.