Goldman Sachs is sticking to its “rogue banker” defense as it grapples with accusations over its role in a widening Malaysian corruption scandal.
Chief executive David Solomon on Wednesday doubled down on his claims that Goldman’s upper management got duped by one of its own employees into arranging a dirty deal that helped fugitive financier Jho Low siphon away billions from the Malaysian government.
Solomon, who reportedly was involved in approving some of Goldman’s involvement with the fund, reiterated that ex-Goldman banker Tim Leissner had lied to his bosses at Goldman about the existence of “intermediaries” in the deal to raise $6 billion for 1Malaysia Development Barhad, or 1MDB, an infrastructure development fund.
In fact, the key intermediary was Low, who orchestrated a scheme to abscond with about half the cash to bribe government officials and fund a lavish lifestyle that included yachts, Basquiat paintings, parties with celebrities like Leonardo DiCaprio and bankrolling the Martin Scorsese movie “The Wolf of Wall Street.”
“It’s very clear that the people of Malaysia were defrauded by many individuals, including the highest members of the prior government,” Solomon said in a quarterly earnings call with investors. “Tim Leissner, who was a partner at our firm, by his own admission, was one of those people.”
“For Leissner’s role in that fraud, we apologize to the Malaysian people,” he added.
Solomon’s latest comments come amid reports that other banks had passed on working with 1MDB over questions about the sources of the fund’s money and the involvement of Low.
Goldman’s own former Asia head also was replaced after raising concerns about working with 1MDB, according to “Billion Dollar Whale,” a book about the scandal.
Solomon admitted Goldman’s own wealth management group likewise had raised red flags about Low — who has been indicted by the US Justice Department for money laundering but is at large and believed to be in China — as far back as 2010, and continuing through 2014.
Nevertheless, Solomon on Wednesday still appeared to be making excuses for the bank’s entanglement with Low, noting that Goldman wasn’t the only bank that had been working with him.
“Jho Low’s involvement in a number of transactions unrelated to 1MDB was well known to a number of financial institutions including us,” Solomon said.
“In fact, before, during and after the 1MDB transactions, Low engaged with major companies, investors and other financial institutions in acquiring highly visible assets from media to real estate,” he added.
Authorities worldwide including the DOJ have stepped up probes into Goldman’s 1MDB role. The scandal is the most serious for the bank since reports surfaced over its central role in the financial crisis of 2008, with Goldman shares losing more than a third of their value last year.
Goldman said Wednesday the reserve it has set aside to pay for litigation and regulation soared an eye-popping 5,633 percent, to $516 million last quarter, from $9 million a year earlier.
Nevertheless, Stephen Scherr, the bank’s chief financial officer, speculated that the bank could lose an additional $2 billion over the 1MDB scandal.
Goldman execs’ comments on 1MDB came as the bank on Wednesday reported a surprisingly healthy profit of $2.54 billion amid strong investment-banking revenue, sending its shares surging 7 percent.
