When it comes to serial and systemic frauds perpetrated by big banks on Wall Street, the U.S. Department of Justice typically punts. It will either not charge the bank itself or it will issue a felony charge along with a non-prosecution agreement that lets the bank settle the charges without a trial. These tactics by the Justice Department are why Wall Street crimes remain serial and systemic in nature.
This morning, the Attorney General in Malaysia stunned Goldman Sachs with an indictment of 17 of its former and current executives. That came on the heels of criminal charges filed last December by Malaysian authorities in the same matter against three Goldman Sachs subsidiaries and two former Goldman employees, Tim Leissner and Roger Ng.
Indictments announced this morning included charges against Richard J. Gnodde, Goldman’s top international banker in London and former Goldman executive J. Michael Evans, who is currently president of Alibaba.
The charges stem from a Malaysia state development fund, 1Malaysia Development Bhd (1MDB) for which Goldman Sachs underwrote $6.5 billion in bonds in 2012 and 2013. Goldman made an outsized $600 million in fees on the deals. According to prosecutors, $4.5 billion in 1MDB funds have gone missing, of which at least $2.7 billion was stolen according to prosecutors.
Malaysia Attorney General Tommy Thomas said jail time and criminal fines will be sought against those indicted given the “severity of the scheme to defraud and fraudulent misappropriation of billions in bond proceeds” and “the lengthy period over which the offences were planned and executed….”
Contrast how Malaysia has moved to hold key Goldman Sachs executives accountable versus what the U.S. Department of Justice has done. On November 1 of last year, the Justice Department announced charges against former Goldman employees Tim Leissner and Roger Ng and a financier involved in the dealings, Jho Low. But the Justice Department did not bring charges against any of the three units of Goldman Sachs that were involved and its press release is even too timid to mention the name Goldman Sachs. It refers simply to “U.S. Financial Institution #1,” suggesting it believes Goldman Sachs somehow deserves reputational protection.
It’s important to recall that the Justice Department let Goldman Sachs wiggle out of criminal prosecution with a payment of $550 million in 2010 over its role in facilitating a $1 billion fraud called Abacus. Goldman Sachs allowed the hedge fund, John Paulson & Co., to select mortgage bonds that were likely to fail to put into the deal so that the hedge fund could short the deal and end up making $1 billion. Goldman Sachs pitched the deal to its investors as a sound investment. Those investors ended up losing the same $1 billion that Paulson & Co. made in profits. A lowly Goldman Sachs’ salesman on the deal, Fabrice Tourre, was the only Goldman employee to be charged in the matter. Tourre was found guilty at trial but also got off by paying a fine. (See John Paulson and the Ick Factor at NYU.)
For the love of God, please let these prosecutions proceed to completion.
SOMEONE needs to hold these ratf%$#s accountable.