PETALING JAYA - Over 30 Goldman Sachs executives including bank boss David Solomon and his predecessor, Lloyd Blankfein reviewed the 1Malaysia Development Berhad (1MDB) deals, according to sources familiar with the approval process.
The Financial Times reported the Wall Street bank helped 1MDB sovereign wealth fund sell about RM27.06 bil (US$6.5bil) of bonds between 2012 and 2013, two years before Malaysian police raided 1MDB's offices to investigate allegations of massive fraud.
In a 2016 indictment, the US Department of Justice alleged that much of the money raised with Goldman's help was siphoned off by Low Taek Jho, who funnelled it into everything from Beverly Hills properties to Van Gogh paintings.
The report added that DoJ, which is still exploring what sanctions if any Goldman should face, has brought criminal charges against former Goldman bankers Tim Leissner and Roger Ng in connection with the deal.
Leissner had pleaded guilty to two counts of conspiring to commit money laundering and bribe foreign officials, the justice department said on Thursday. Ng was reported to be arrested in Malaysia on similar charges.
FT reported that Goldman declined to comment beyond saying that it is reviewing the DoJ's filings and co-operating with the investigation.
In a filing to the Securities and Exchange Commission on Friday (Nov 2), the Wall Street firm estimated that possible losses related to litigation proceedings could run as high as $1.8bil (RM7.49 bil) above its total reserves for such matters. Previously, Goldman estimated litigation losses to be in an excess of $1.5bil (RM6.24 bil).
Company insiders were quoted saying the deal had been extensively scrutinised, since it involved not only the Malaysian sovereign wealth fund but also Abu Dhabi's, which was teed up to buy some of the bonds.
"There were two sovereign wealth funds . . . everybody had a look at this," said one banker who reviewed the deal. "You're not going to find that what happened . . . (was) because there wasn't an appropriate level of oversight."
The source told FT that "everybody" included Blankfein and Solomon, who was head of Goldman's investment banking division from 2006 to 2012, as well as Gary Cohn, then chief operating officer of the bank.
FT noted that a second person with knowledge of the deal's approval process confirmed that more than 30 people at the bank reviewed it.
"There was no concern that the money was going to be stolen," he said. "The concern was that this is a new sovereign wealth fund, the concerns expressed were 'do they understand (the fundraising)?'"
Goldman received nearly RM2.487 bil (US$600mil) in fees from the deals. Rival bankers have said that the hefty fees the fund was willing to pay for the fundraising should have raised red flags.
FT reported that a senior official at Malaysia's finance ministry this week said Goldman charged between 9 to 11 per cent of funds raised.
The business daily reported that the second person with knowledge of the deal said Goldman offered 1MDB a menu of fee structures and that the fund picked one that involved the US bank taking the most risk on to its balance sheet. If the bond's price had fallen, Goldman would have lost money.
The US bank has already taken a hit to its business in Singapore and Malaysia because of the scandal; clients in bigger Asian markets, including China and Japan, are not concerned, one Hong Kong-based Goldman Sachs source said.
During Friday trading in New York, the bank's shares were slightly above where they were when the news broke the day before.
"I don't think it has been or will prove to be a very big deal for Goldman Sachs investors," said Jeff Harte, an analyst at Sandler O'Neill was quoted by FT.
"(It) looks like a few employees dodged Goldman Sachs's internal systems to secure business from 1MDB. Clearly not a positive, but not terrible or widespread."