(Sept 14): Former Goldman Sachs Group Inc. President Gary Cohn backed the US bank’s dealings with embattled Malaysian state fund 1MDB while executives who questioned the transactions were sidelined, according to a new book.
Cohn supported the "potentially lucrative line of business" that some of its top Asia-based bankers were developing in Malaysia, said the authors of "Billion Dollar Whale," to be released by Hachette Books on Tuesday. Those executives included Tim Leissner, the former Goldman banker who led the 1MDB bond sales, and Andrea Vella, who headed Goldman’s debt and structured finance business in Asia.
"The backing of a domineering and powerful personality like Cohn afforded significant cover to those involved in the 1MDB business and drowned out the voices of those who were uncomfortable with the plans to raise billions of dollars for the fund," the authors wrote. Cohn left Goldman in 2016 and later became White House economic adviser, a role he relinquished earlier this year.
Cohn didn’t immediately respond to a request for comment.
The book also said that Goldman structured 1MDB debt issues to secure out-sized profits, by purchasing the bonds at a discount despite having lined up buyers for the notes. And Goldman’s internal committees that were set up to identify fraud failed to do sufficient diligence on the deals, or carry out a proper valuation of assets that 1MDB purchased, the authors claimed.
Global Investigations
Goldman has been under scrutiny for years for its role in raising $6.5 billion for state-owned 1Malaysia Development Bhd. and for nearly US$600 million ($822 million) in fees it earned for the bond issuance. 1MDB is at the center of a global scandal involving claims of embezzlement and money laundering, which have triggered investigations in the US, Singapore, Switzerland and other countries.
The New York-based bank, which has not been accused of any wrongdoing, has said it was helping 1MDB raise funds for investments that would benefit Malaysia, and couldn’t have foreseen where the money would go after that.
One potential deal with 1MDB wound its way through five Goldman committees set up to examine financial and legal risk, according to the book. Some executives also questioned the position of Low Taek Jho at the Malaysian fund, but Leissner downplayed his role. Leissner was later suspended because he used Goldman’s letterhead without authorization to write a reference letter for Low to another bank.
"We take issue with several characterisations in the book but it does corroborate that Tim Leissner deliberately hid certain activities from us and repeatedly violated our policies and procedures," Goldman Sachs spokesman Edward Naylor in Hong Kong said in an email.
Possible Plea
US prosecutors negotiating a possible deal with Leissner are pressing for information about whether the bank turned a blind eye to the plunder of 1MDB, Bloomberg News reported in July, citing a person familiar with the matter. If they reach a plea agreement with Leissner, he would become a key witness against his superiors at the bank, said the person.
Malaysia has charged Low with money laundering and said it’s seeking Interpol’s help to locate and arrest him, tightening the net around a central figure in the scandal. Low’s whereabouts aren’t known and his spokesmen have repeatedly said he maintains his innocence and is confident he will be vindicated. They didn’t respond to an email seeking comment on allegations made in the book.
David Ryan, a former Goldman president for Asia excluding Japan, was among those urging caution about 1MDB, according to the book. He sought to reduce the fees paid by 1MDB in a second bond sale, but was overruled. Around then, the bank brought in veteran banker Mark Schwartz to become the region’s chairman and Ryan’s senior, it said. Ryan left in 2013, while Schwartz stepped down from the chairman role in 2016.
Naylor said Goldman’s concern with some characterisations in the book included "this part of the narrative and the conclusions it invites the reader to make" on Ryan and Schwartz.
IPIC Meeting
Leissner and Low met with Sheikh Mansour bin Zayed al Nahyan, the chairman of Abu Dhabi sovereign wealth fund International Petroleum Investment Co., in March 2012 to discuss guaranteeing 1MDB debt in exchange for giving IPIC rights to buy a stake in the Malaysian fund’s power assets, the authors wrote.
Sheikh Mansour approved the proposal for IPIC to guarantee 1MDB’s debt, which the authors said was an "artificial construct" aimed at diverting more than $1 billion from the Malaysian company.
"Leissner’s colleagues at Goldman’s Middle Eastern headquarters in Dubai, who did regular business with IPIC, found the idea preposterous and declined to get involved," the book said. "Even IPIC’s own finance director raised questions about why IPIC would put itself at risk over another fund’s business - one with no track record, at that -- but was outranked."
IPIC completed a merger with sovereign wealth fund Mubadala Development Co. last year. A Mubadala representative declined to comment.
Funds related to the bond sales and guarantees were sent to offshore affiliates that appeared to be related to IPIC but were in fact controlled by individuals who benefited from the 1MDB fraud in cooperation with Low, according to U.S prosecutors.
"The bank appeared to be overcharging a client in Malaysia whose willingness to pay above the odds was illogical," the authors said. "A series of red flags -- from the involvement of Jho Low, to the unusual decision to obtain a guarantee from the fund of another country, to 1MDB’s willingness to overpay for the power plants -- were all overlooked."
