Fed Warned Goldman on Malaysia Bond Deals

by Justin Baer and Bradley Hope
Wall Street Journal
April 6, 2016

Regulator raised concerns about risk to firm’s reputation from work on 1MDB transactions

Regulators at the Federal Reserve have raised concerns with Goldman Sachs Group Inc. that deals it helped put together for a controversial Malaysian government investment fund could have put the firm’s reputation at risk, according to people familiar with the matter.

Those deals are increasingly under a brighter spotlight, as additional details emerge about the alleged actions of the firm’s former Southeast Asia head who handled transactions for the fund, 1Malaysia Development Bhd. or 1MDB.

People familiar with the matter said the partner, Tim Leissner, was suspended from the firm for writing a letter vouching for a financier with ties to that fund. Mr. Leissner was suspended and later quit early this year after a review of his email found he had allegedly written an unauthorized reference letter on behalf of Jho Low, a Malaysian investor who helped found 1MDB and was involved in some transactions done by the fund, people familiar with the matter said.

When it disclosed Mr. Leissner’s suspension, Goldman didn’t name Mr. Low. The fact that Mr. Leissner wrote a letter of reference to another financial institution for someone involved in 1MDB puts the firm deeper into the controversy surrounding the fund, lawyers say.

People familiar with the matter said Mr. Leissner’s letter had included details on Mr. Low’s finances, while overstating the extent to which Goldman had done due diligence on him.

Goldman is withholding unvested stock worth millions of dollars from Mr. Leissner going back several years until it completes its internal investigation on his dealings with 1MDB and Mr. Low, people familiar with the matter said. Goldman and Mr. Leissner have been negotiating over his compensation since he resigned.

Mr. Leissner, who has been subpoenaed in the probe and is cooperating with investigators, has not been accused of wrongdoing in the 1MDB deals. He didn’t respond to requests for comment about the letter and his involvement with Jho Low.

In writing the letter vouching for Mr. Low, which was reported earlier Tuesday by Bloomberg News, Mr. Leissner was lending Goldman’s name to a person whose lavish lifestyle and reputation for partying with celebrities such as Paris Hilton and Lindsay Lohan have been well documented by celebrity gossip sites and tabloids.

Goldman Sachs was the main banker to 1MDB, advising on three acquisitions and arranging the sale of three bonds valued at a total of $6.5 billion, that brought in $650 million for the firm. Mr. Leissner, who was among the bankers working on the deals in 2012 and 2013, helped counsel 1MDB from its inception.

Investigators in at least six countries plus Malaysia are probing 1MDB. U.S. investigators are trying to determine whether Goldman misled investors who bought the 1MDB bonds, a person familiar with the matter said. The Wall Street Journal has previously reported that Goldman was part of a broad probe by the Federal Bureau of Investigation and the Justice Department. The investigation remains in its early stages, and neither Goldman nor 1MDB has been accused of wrongdoing.

By early 2014, The Federal Reserve, Goldman’s main U.S. regulator, was scrutinizing the bond deals, questioning the firm on why 1MDB had continued to sell bonds despite holding ample cash, the people said. Fed officials were also critical of Goldman’s vetting of the 1MDB deals, noting they had posed reputational risk.

Fed officials have continued to monitor Goldman’s role in the Malaysia scandal, the people said.

A Fed spokesman declined to comment.

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  1. #1 by Bigjoe on Thursday, 7 April 2016 - 5:09 pm

    The first line coming out of Najib mouth after the PAC report is to attack Dr. M and not exactly true even,,

    Najib said the PAC report proved Dr. M’s charge of RM42 is false. The PAC report did not say anything close to that. Yet, Najib came out spinning the exaggeration he wants. The others on his team followed his lead. – All they are interested is to as many of the dumbest and most corrupt people support and ride over rough shod over everyone else doubters, smarter.

    Its vomitting..

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