KUALA LUMPUR (Aug 8): US federal prosecutors have drafted a criminal complaint against former Goldman Sachs banker Tim Leissner early this year for his alleged role in a vast Malaysian fraud, but the charges were never filed because of a US Department of Justice (DoJ) turf battle, according to a New York Times (NYT) report today.
The report, citing four people familiar with the investigation, said the inquiry is solely in the hands of federal prosecutors in Brooklyn, who are investigating a target much bigger than a single Wall Street banker: Goldman Sachs itself.
The investigation centres on the disappearance of about US$4 billion from 1Malaysia Development Bhd (1MDB).
"Prosecutors in the US and elsewhere believe that a group of people with close ties to former Malaysian prime minister Datuk Seri Najib Razak stole from the fund to buy paintings, yachts, real estate and even investment stakes in movies like The Wolf of Wall Street," NYT reported.
Goldman Sachs reportedly provided an array of services to the fund, including helping it sell billions of US dollars in bonds to investors. The bank earned about US$600 million in fees for its work. Authorities are examining whether the firm played a role in the 1MDB fraud or should have done more to uncover the misappropriation of funds, the people told NYT.
Goldman Sachs has repeatedly played down its role in the 1MDB scandal, saying it was unaware of how money from the fund was being used. The firm has said it was cooperating with the investigation.
“Goldman Sachs had no visibility into whether some of the funds we helped raise for 1MDB, may have been subsequently diverted to other purposes,” Michael DuVally, a Goldman spokesman, told NYT.
The result of the tug-of-war within the DoJ is that the investigation is now more intensively focused on the potential culpability of Goldman Sachs, NYT said.
According to the report, officials in the US attorney’s office in the Central District of California, in Los Angeles, have spent nearly three years investigating the 1MDB case.
In January, prosecutors from that office told their counterparts in the Eastern District of New York, in Brooklyn, that they planned to criminally charge Leissner, who had worked closely with 1MDB, two of the people familiar with the investigation told NYT.
The prosecutors in California hoped to use the charges against Leissner as leverage to negotiate a plea agreement with him and to secure his cooperation in potential cases against several other people, one of the people told NYT. The charges that were drawn up against Leissner included an accusation that he had provided misleading information to Goldman Sachs, something he was previously sanctioned for by securities regulators in Singapore.
NYT reported that the prosecutors in Brooklyn, who joined the investigation about two years ago, objected to the filing of charges against Leissner, which they said would hamper their investigation into Goldman’s possible role in the scandal. The worry was that accusing Leissner of tricking Goldman Sachs could undermine their case by casting the firm as a victim, one of the people said.
The unusual dispute between the US attorneys’ offices eventually made its way to DoJ headquarters in Washington, which also has been heavily involved in the investigation. Rod Rosenstein, the deputy attorney general, sided with the prosecutors in Brooklyn, handing them full responsibility for the 1MDB criminal investigation, the four people said. The prosecutors in Los Angeles were left to pursue civil cases involving the forfeiture of assets bought in the US with money diverted from the investment fund.
NYT reported that the prosecutors in Brooklyn are now considering their own criminal charges against Leissner, which they hope will motivate him to cooperate and to provide more information about Goldman Sachs’ overall role and the roles played by others at the Wall Street firm.
Until recently, the investigation was focused mainly on allegations that a Malaysian financier, Low Taek Jho, who is also known as Jho Low, misappropriated billions of US dollars from the 1MDB fund. The prosecutors in Los Angeles have filed multiple civil lawsuits to recoup assets bought with some of that money.
When the prosecutors in Brooklyn started to investigate the matter in late 2016, a few months after the first civil forfeiture action was filed, their interest was on whether Goldman and other financial institutions had done enough to stop the fraud, the four people said. Since then, authorities in Brooklyn have focused primarily on Goldman Sachs’ activities.
Goldman Sachs has disclosed receiving subpoenas “from various governmental and regulatory bodies” as part of the 1MDB investigation. The bank has sought to distance itself from Leissner, who left Goldman Sachs in early 2016, after Goldman Sachs learnt he had provided Low with a reference in an unauthorised letter.
“Since we suspended Mr. Leissner, we have discovered certain activities he undertook that were deliberately hidden from the firm, which we have brought to the attention of the relevant authorities who continue to receive our full cooperation,” said DuVally in the NYT report.
In June, Finance Minister Lim Guan Eng said the Malaysian government intended to seek restitution from Goldman for some of the missing money.
Malaysian authorities have also obtained an arrest warrant for Low, who is still being sought.