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22

Nov - 2018

Goldman Sachs's 1MDB scandal deepens with Abu Dhabi funds’ lawsuit

Goldman Sachs’s Malaysia fraud and bribery scandal intensified Wednesday after two Abu Dhabi investment funds claimed in a lawsuit they suffered losses from the bank’s “central role” in the case

International Petroleum Investment Co. and Aabar Investments alleged in a court filing that Goldman Sachs Group Inc. paid bribes to former fund officials, who in exchange “agreed to manipulate and mislead IPIC and Aabar, and to misuse the companies’ names, networks, and infrastructures to further the criminal schemes and to personally benefit.”

The furor surrounding Goldman Sachs’s role in raising money for the Malaysian state investment fund, known as 1MDB, has weighed on the bank’s shares, which fell the most in seven years on Nov. 12 after Malaysia’s finance minister said he would seek a full refund of all the fees it paid for 1MDB deals. At least three senior current or former Goldman executives were implicated in the first charges against individuals by U.S. prosecutors.

“I would expect to continue to see headline risk around this at least until they can resolve the matter with U.S. authorities,” Alison Williams, an analyst at Bloomberg Intelligence, said in an interview.

Betsy Graseck, an analyst at Morgan Stanley, cut her recommendation on the shares to the equivalent of hold from buy on Wednesday, saying it’s unclear how long the 1MDB investigation will take, how much in fines and penalties may be imposed or what costs Goldman Sachs will incur to satisfy regulatory demands.

The U.S. alleges that a small group of Malaysians diverted money from 1MDB into personal accounts disguised to look like legitimate businesses, and kicked back some of those funds to officials. Goldman Sachs made $593 million working on three bond sales that raised $6.5 billion for 1MDB in 2012 and 2013, dwarfing what banks typically make from government deals.



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