Malaysia sues Goldman Sachs over bond fraud

Goldman Sachs sign Source: Bloomberg

Malaysia is suing Goldman Sachs on charges of committing fraud. The nation alleges that the US bank misled investors when it sold bonds for the country’s state fund, 1 Malaysia Development Berhad (1MDB). The Asian country has maintained that the company knowingly misappropriated funds.

Goldman Sachs and 1MDB

The trouble with Goldman Sachs started when the bank started arranging bond deals worth $6.5 billion in 2012 for 1MDB, a development company owned by Malaysia. In 2016, the US Federal Bureau of Investigation (FBI) put the corporation under scrutiny and claimed that $2.7 billion was misappropriated by three bankers. Two US executives were charged with fraud, while a Malaysian employee was recently arrested.

Malaysia’s attorney general, Tommy Thomas, filed charges against Goldman Sachs, alleging that the bankers stole bond funds and advanced their careers after the theft. The nation is demanding $3.3 billion in repayment.

‘In addition to personally receiving part of the misappropriated bond proceeds, those employees and directors of Goldman Sachs received large bonuses and enhanced career prospects at Goldman Sachs and in the investment banking industry generally. Their fraud goes to the heart of our capital markets, and if no criminal proceedings are instituted against the accused, their undermining of our financial system and market integrity will go unpunished,’ wrote Thomas in his filing.

Did Goldman Sachs know about fraud?

The bank said that only a few executives committed fraud and Goldman Sachs acted in compliance with the deal’s terms. The company said that Malaysia lied about how it would spend the proceeds from the bonds.

‘Under the Malaysian legal process, the firm was not afforded an opportunity to be heard prior to the filing of these charges against certain Goldman Sachs entities, which we intend to vigorously contest,’ said Goldman.

While the bank denies that high-level officials knew about the misappropriation, a former employee said that Goldman Sachs knew about the bond embezzlement.

‘Anyone who's been there a long time knows you can't do big things without senior people knowing, period. No matter how senior you are, there's always somebody above you. So, a lot of people had to decide they were comfortable committing billions of dollars to this,’ said the ex-employee.

The incident has hurt the bank’s reputation over the past year, with shares falling downward. Even when Goldman Sachs stock rebounds, the bank must make many changes to regain customers' trusts in Malaysia after this latest scandal.

See an opportunity to trade?

Go long or short on more than 16,000 markets with IG.

Trade CFDs on our award-winning platform, with low spreads on indices, shares, commodities and more.

Live prices on most popular markets

  • Forex
  • Shares
  • Indices
Bid
Offer
Updated
Change
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Bid
Offer
Updated
Change
Bid
Offer
Updated
Change
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Monday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.


IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

Please see important Research Disclaimer.