Goldman Sachs
has been sued by a shareholder of one of its former clients over
alleged fraudulent misrepresentations that involve links to the prime
minister of Malaysia.
Primus Pacific Partners, a private equity firm and the largest shareholder in Malaysian bank EON Capital, filed suit against Goldman for $510 million for fraud and breach of fiduciary duty, according to a statement released Tuesday.
The suit claimed that Goldman
Sachs concealed a conflict of interest involving Malaysian Prime
Minister Najib Razak while the investment bank was acting as financial
adviser to EON, which was weighing a takeover bid by Hong Leong Bank.
Talks on the deal reportedly began in 2009, but the bid was held up
until 2011 as Primus fought the offer in Malaysia's courts.
One of the prime minister's brothers, Nazim Razak, was a director at Hong Leong Bank, while another brother, Nazir Razak, was chairman of CIMB Group, which advised Hong Leong Bank on the bid.
At the same time as it was advising EON, Goldman was an adviser to 1Malaysia Development Berhad, also known as 1MDB, a development fund established by the prime minister, the lawsuit noted.
Primus claimed that Goldman first called the Hong Leong bid "unfair," only to reverse course weeks later. According to the suit, the final price of the merger was "hundreds of millions of dollars below fair value," but the reversal may have furthered Goldman's role as adviser to 1MDB. The original complaint can be read here.
In a statement in response to the suit, Goldman Sachs pointed out that Primus had already failed to block the deal.
"This plaintiff previously lost its challenge in the Malaysian courts seeking to stop a transaction involving a Malaysian company, which was then approved by shareholders," the investment bank said. "We will vigorously contest this misguided additional lawsuit in New York court."
After the court decision in 2011, Dow Jones reported that Primus faced a "significant loss on its investment" in EON if the takeover by Hong Leong Bank took place.
Primus Pacific Partners, a private equity firm and the largest shareholder in Malaysian bank EON Capital, filed suit against Goldman for $510 million for fraud and breach of fiduciary duty, according to a statement released Tuesday.
The suit claimed that Goldman
Sachs concealed a conflict of interest involving Malaysian Prime
Minister Najib Razak while the investment bank was acting as financial
adviser to EON, which was weighing a takeover bid by Hong Leong Bank.
Talks on the deal reportedly began in 2009, but the bid was held up
until 2011 as Primus fought the offer in Malaysia's courts. One of the prime minister's brothers, Nazim Razak, was a director at Hong Leong Bank, while another brother, Nazir Razak, was chairman of CIMB Group, which advised Hong Leong Bank on the bid.
At the same time as it was advising EON, Goldman was an adviser to 1Malaysia Development Berhad, also known as 1MDB, a development fund established by the prime minister, the lawsuit noted.
Primus claimed that Goldman first called the Hong Leong bid "unfair," only to reverse course weeks later. According to the suit, the final price of the merger was "hundreds of millions of dollars below fair value," but the reversal may have furthered Goldman's role as adviser to 1MDB. The original complaint can be read here.
In a statement in response to the suit, Goldman Sachs pointed out that Primus had already failed to block the deal.
"This plaintiff previously lost its challenge in the Malaysian courts seeking to stop a transaction involving a Malaysian company, which was then approved by shareholders," the investment bank said. "We will vigorously contest this misguided additional lawsuit in New York court."
After the court decision in 2011, Dow Jones reported that Primus faced a "significant loss on its investment" in EON if the takeover by Hong Leong Bank took place.
The office of Malaysia's prime minister and 1MDB did not immediately respond to emailed requests for comment.
The suit comes as 1MDB faces international regulatory scrutiny over accusations that its funds were misappropriated. U.S. prosecutors sued last week to seize more than $1 billion in assets they said were tied to a scheme to launder money stolen from the fund.
Questions about movement of funds from 1MDB gained attention about a year ago, when The Wall Street Journal reported that in 2013 nearly $700 million had flowed from the fund to Malaysian Prime Minister Najib Razak's personal bank account.
Najib has repeatedly denied wrongdoing and, under pressure from the outcry caused by the WSJ report, said the funds were not from 1MDB but were a private donation from a Middle Eastern country he declined to name. He has denied benefiting personally from the funds.
In January, Malaysia's Attorney General Mohamed Apandi Ali said that Saudi Arabia's royal family gave Najib a $681 million gift, of which Apandi said about $600 million was later returned.
Apandi said that no criminal offense had been committed. But globally, investigations into 1MDB in locales as varied as U.S., Switzerland, Singapore and the Seychelles have continued.
This month U.S. prosecutors said they were seeking to seize more than $1 billion of assets tied to an international conspiracy to launder funds funneled away from 1MDB, marking the biggest action ever taken under the Kleptocracy Asset Recovery Initiative.
In a statement, the Department of Justice said officials at 1MDB, their relatives and other associates diverted more than $3.5 billion from the state fund and laundered it through complex transactions and shell companies with bank accounts in Singapore, Switzerland, Luxembourg and the U.S.
Some of the laundered funds allegedly flowed into production of the 2013 film "The Wolf of Wall Street," a film about a corrupt stockbroker, that was banned from playing in Malaysia for being too risqué.
The film's producer, Red Granite Pictures, was co-founded by Najib's stepson Riza Aziz. Riza was named as a "relevant individual" in the DOJ complaint, but Najib wasn't named in the U.S. prosecutor's complaint.
However, the Wall Street Journal reported, citing a person with direct knowledge of the investigation, that the complaint's 32 references to "Malaysian Official 1," who allegedly received hundreds of millions from 1MDB, were a reference to Najib.
At the time, the Najib's office said in a statement, "As the Prime Minister has always maintained, if any wrongdoing is proven, the law will be enforced without exception."
Red Granite last week said in a statement that it continued to "cooperate fully" with all investigations and that "when the facts come out, it will be clear that Riza Aziz and Red Granite did nothing wrong."
Separately this week, the New York Times reported that the Federal Reserve is preparing an enforcement action against Goldman Sachs related to confidential government information which was leaked by a Fed employee to a junior Goldman banker who was a former Fed employee.
The report noted that a Goldman spokesman said in a statement that the bank had already "reviewed our policies regarding hiring from governmental institutions and have implemented changes to make them appropriately robust."
—CNBC's Kate Kelly contributed to this report.
Link: http://www.cnbc.com/2016/07/26/1mdb-goldman-sachs-faces-lawsuit-over-ties-to-malaysian-fun.html
The suit comes as 1MDB faces international regulatory scrutiny over accusations that its funds were misappropriated. U.S. prosecutors sued last week to seize more than $1 billion in assets they said were tied to a scheme to launder money stolen from the fund.
Questions about movement of funds from 1MDB gained attention about a year ago, when The Wall Street Journal reported that in 2013 nearly $700 million had flowed from the fund to Malaysian Prime Minister Najib Razak's personal bank account.
Najib has repeatedly denied wrongdoing and, under pressure from the outcry caused by the WSJ report, said the funds were not from 1MDB but were a private donation from a Middle Eastern country he declined to name. He has denied benefiting personally from the funds.
In January, Malaysia's Attorney General Mohamed Apandi Ali said that Saudi Arabia's royal family gave Najib a $681 million gift, of which Apandi said about $600 million was later returned.
Apandi said that no criminal offense had been committed. But globally, investigations into 1MDB in locales as varied as U.S., Switzerland, Singapore and the Seychelles have continued.
This month U.S. prosecutors said they were seeking to seize more than $1 billion of assets tied to an international conspiracy to launder funds funneled away from 1MDB, marking the biggest action ever taken under the Kleptocracy Asset Recovery Initiative.
In a statement, the Department of Justice said officials at 1MDB, their relatives and other associates diverted more than $3.5 billion from the state fund and laundered it through complex transactions and shell companies with bank accounts in Singapore, Switzerland, Luxembourg and the U.S.
Some of the laundered funds allegedly flowed into production of the 2013 film "The Wolf of Wall Street," a film about a corrupt stockbroker, that was banned from playing in Malaysia for being too risqué.
The film's producer, Red Granite Pictures, was co-founded by Najib's stepson Riza Aziz. Riza was named as a "relevant individual" in the DOJ complaint, but Najib wasn't named in the U.S. prosecutor's complaint.
However, the Wall Street Journal reported, citing a person with direct knowledge of the investigation, that the complaint's 32 references to "Malaysian Official 1," who allegedly received hundreds of millions from 1MDB, were a reference to Najib.
At the time, the Najib's office said in a statement, "As the Prime Minister has always maintained, if any wrongdoing is proven, the law will be enforced without exception."
Red Granite last week said in a statement that it continued to "cooperate fully" with all investigations and that "when the facts come out, it will be clear that Riza Aziz and Red Granite did nothing wrong."
Separately this week, the New York Times reported that the Federal Reserve is preparing an enforcement action against Goldman Sachs related to confidential government information which was leaked by a Fed employee to a junior Goldman banker who was a former Fed employee.
The report noted that a Goldman spokesman said in a statement that the bank had already "reviewed our policies regarding hiring from governmental institutions and have implemented changes to make them appropriately robust."
—CNBC's Kate Kelly contributed to this report.
Link: http://www.cnbc.com/2016/07/26/1mdb-goldman-sachs-faces-lawsuit-over-ties-to-malaysian-fun.html
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