Investment bank Goldman Sachs (NYSE: GS) experienced a setback yesterday when it was slapped with a lawsuit by Aabar Investments and its holding company International Petroleum Investment Company (IPIC) at New York state court. The case was filed by the sovereign wealth fund of Abu Dhabi over an alleged conspiracy involving the 1MDB fund of Malaysia.
Goldman Sachs accused of bribing
Back in 2012 and 2013, Goldman Sachs lined up three huge bond offerings for the 1MDB (1Malaysia Development Berhad) fund, which was established by ex-prime minister Najib Razak to lure foreign investment. However, the 1MDB fund accrued debt in billions of dollars soon after its inception in 2009.
Furthermore, the fund became the center of numerous investigations related to alleged money laundering and corruption. The bond sales, which generated a total of $6.5 billion, earned Goldman Sachs roughly $600 million in fees, as per court documents.
Notably, over $2.70 billion of the receipts from those offerings was swindled from 1MDB, according to the US Justice Department. The US regulator alleges that a small team of Malaysians redirected money from 1MDB into their personal accounts camouflaged to look like legitimate businesses, and sent back a portion of those funds to officials.
Goldman Sachs, who supposedly met with the officers of the Justice Department, maintains that rogue employees deluded their compliance and legal divisions.
The lawsuit accuses Goldman Sachs of engaging in a global conspiracy to misappropriate millions of dollars from the 1MDB fund, which was established by the Malaysian government with a vision to enhance the domestic economy. US authorities allege that $4.5 billion was siphoned from 1MDB over a period of six years by several people, including the Malaysian government officials.
The funds have claimed that they were affected when Goldman Sachs paid bribes to Khadem Al-Qubaisi, IPIC’s former managing director, and Ahmed Badawy Al-Husseiny, ex-CEO of Aabar Investments. The complaint alleges that Al-Qubaisi and Al-Husseiny joined the conspiracy and accepted to maneuver and misguide IPIC and Aabar, and to “misuse the institutions’ names, contacts, and infrastructures to implement the illegal schemes and personally benefit.”
The lawsuit names Khadem Abdulla Al-Qubaisi and Mohamed Ahmed Badawy Al-Husseiny as defendants in the summons. Additionally, the US DoJ alleges that Al-Qubaisi received $473 million that was funneled from 1MDB in 2012.
The agitation encircling Goldman Sachs’s involvement in raising money for 1MDB has already started affecting the bank’s shares, which dropped the most in seven years on November 12 after Malaysia’s finance minister announced he would ask for a full refund of the entire fees paid for 1MDB deals.
A minimum of three senior current or former Goldman executives have been implicated in the initial charges by the US prosecutors. The damage claimed by the Abu Dhabi funds was not revealed. However, it was shown that the claims filed in New York state court were less than two pages long. A more detailed complaint is expected to be presented in the next two to three weeks.
Goldman Sachs Group and three of its divisions in Asia are named as defendants. A Goldman Sachs spokesman said, “We are in the process of assessing the details of allegations and fully expect to contest the claim vigorously.”
The outcome of the trial will determine the compensation amount that has to be paid by Goldman Sachs if found liable. The court document also reveals that IPIC and its subsidiary are demanding legal costs, punitive damages, and other awards as the court considers acceptable. Goldman Sachs and other defendants have 30 days to reply to the summons.
Michael Carlinsky, one of IPIC’s attorneys, said: “IPIC will take any and all legal action necessary, now and in the future, to protect its business interests against the financial exposure and damages it has suffered as a result of this international conspiracy.”
The equity market is expected to react negatively to the news when the market opens today.
The stock has already broken the 50-day moving average. Furthermore, the MACD indicator is making new lows in the negative zone. As a result, we can expect the stock to move down in the short-term.
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