Goldman Sachs Faces Criminal Charges From Malaysia Over 1MDB Scandal

The government of Malaysia filed criminal charges against Wall Street giant Goldman Sachs Group Inc GS for alleged wrongdoing related to advisory services it offered 1Malaysia Development Berhad (1MDB), a Malaysian strategic development company fully owned by the government.

What Happened

Goldman Sachs offered M&A related advise to 1MDB related to a proposed takeover of Tanjong Energy Holdings and two domestic power plants. Among several alleged wrongdoings on the part of Goldman Sachs role, the bank sold bonds to facilitate the transaction to generate higher commission rates versus other financing options. Goldman Sachs' lead banker for bond sales, Tim Leissner, already admitted to U.S. law officials he bribed Malaysian government officials to win the deal, according to Bloomberg.

Why It's Important

Malaysian authorities filed criminal charges against Goldman Sachs and allege the bank misled investors. At the heart of the allegation is that Goldman Sachs knew proceeds from the 1MDB bond sales it facilitated would be misappropriated. The government is now seeking fines on top of the $2.7 billion that was allegedly misused and the $600 million in fees the bank received as commission.

Goldman Sachs is now facing what Bloomberg says is its "thorniest scandal" since the financial crisis last decade. Meanwhile, Malaysian Attorney General Tommy Thomas was quoted by Bloomberg as saying Goldman Sachs' fraud "goes to the heart of our capital markets."

"If no criminal proceedings are instituted against the accused, their undermining of our financial system and market integrity will go unpunished," he said.

What's Next

If the outcome of the legal proceedings goes against Goldman Sachs, there could be "potentially severe reputational and financial risks to the bank, as well as the bank's standing as a licensed financial institution with regulators worldwide," Nizam Ismail, a partner at RHTLaw Taylor Wessing LLP in Singapore, told Bloomberg.

Investors may be preparing for a negative outcome based as shares of Goldman Sachs were trading lower by nearly 2 percent early Monday morning.

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