Malaysia weighs legal action against Goldman over 1MDB deals

KUALA LUMPUR: The government will take legal action against Goldman Sachs Group Inc. over the “too high” fees charged by the bank when it arranged bond sales for troubled state fund 1MDB.

Prime Minister Tun Dr Mahathir Mohamad is awaiting a response from the bank and seeks to recoup funds believed to be lost through 1MDB, he said to reporters in the administrative capital of Putrajaya. 

When pressed if the legal action would be in addition to the existing charges against Goldman, Mahathir said the government isn’t taking action yet and will allow the bank to respond first.

“Of course if they don’t respond then we will have to take legal action,” he said. “Banks should be prudent in giving loans or raising bonds or whatever. But obviously not only was Goldman Sachs not prudent but they have used their power to raise bonds and got too big a return.”

A Goldman Sachs representative didn’t immediately respond to a request for comment.

Malaysian prosecutors laid criminal charges against Goldman in December, accusing the lender of misleading investors when it knew that the funds raised from the $6.5 billion 1MDB bond offer would be misappropriated. 

Malaysia is seeking fines in excess of both the US$2.7bil of allegedly misused funds and the US$600mil in fees received by the bank on the deals.

Recoup Funds

Dr Mahathir said the interest rate on the 1MDB bonds arranged by Goldman was too high. One tranche of the notes was sold with a 5.99% coupon rate, where it should be closer to 3%, he added.

He has raised the amount he’s seeking to recoup from 1MDB to US$7bil after previously saying he sought US$4.5bil that the US Justice Department estimated went missing from the troubled Malaysian state investment fund. 

His finance minister, who isn’t formally authorised to decide on the case against Goldman, has said that the country was open to a discussion to drop the criminal charges in exchange for US$7.5bil.

Malaysia is getting back US$322mil from the US and S$50mil from Singapore after selling off assets, from luxury yachts to a stake in New York’s Park Lane Hotel, believed to have been bought using funds illegally funneled from 1MDB.

Goldman was in focus in meetings between law enforcement officials from the U.S., Malaysia and Singapore this week, people with knowledge of the matter said. The authorities will continue to pursue legal actions related to 1MDB independently while keeping each other informed, the people added.- Bloomberg

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