Malaysia's quest to recover the billions of dollars looted from 1MDB, the sovereign wealth fund that was coopted as a political slush fund then ransacked by an enterprising young banker-turned-mogul-turned-fugitive named Jho Low, appears to be ensnaring more American banks.
Months after Goldman Sachs finally admitted to its role in enabling Low to steal government assets by raising money in a series of bond offerings for 1MDB, ignoring the red flags raised by its own compliance department about the risk of fraud and corruption, local Malaysian newspaper the Edge - which led much of the original reporting on the 1MDB fraud - has reported that the Malaysian government has filed lawsuits against JP Morgan and Deutsche Bank.
The Malaysian Finance Ministery, according to a Bloomberg report, has confirmed that 1MDB has filed six lawsuits alleging a range of wrongdoing including fraud and conspiracy to defraud the fund against nine unnamed entities, including two foreign financial institutions, and 25 individuals. Bloomberg's sources have confirmed that the two foreign financial firms were JP Morgan and Deutsche Bank. The Edge also confirmed that both banks had been targeted with lawsuits. However, JPM declined to comment, while Deutsche Bank said it hadn't been served any papers on 1MDB.
According to Bloomberg, Malaysia and the fund are looking to recover some $23 billion in assets.
The lawsuits mark the beginning of a new chapter in the ongoing fallout to the 1MDB fraud, which spawned investigations in Asia, Europe and the US. A sweeping probe by the DoJ ensnared Goldman and also led to seizures of movie rights, a megayacht, luxury apartments, jewelry and other goods allegedly purchased with ill-gotten gains by Low, who is believed to be hiding in China. The fraud in all of its complexity was described in the book "Billion Dollar Whale" by WSJ reporters Tom Wright and Bradley Hope.
"The Government’s recovery efforts are now focused on pursuing other wrongdoers who have caused losses to 1MDB and or SRC during the execution of their duties, as parties directly or indirectly involved in 1MDB and or SRC’s various operations and transactions," Finance Minister Tengku Zafrul Abdul Aziz said in a statement.
Many other smaller financial institutions have also been penalized for their role in the 1MDB scandal. Ultimately, Singaporean regulators seized the license of a subsidiary of Falcon Bank, a Swiss bank operating in Singapore, and Ambank, a Malaysia-based bank, has paid out hundreds of millions of dollars in fines. Both banks offered banking services to 1MDB and Low.
Meanwhile, Malaysian courts are currently hearing an appeal from the legal tea of former Malaysian PM Najib Razak, who empowered the fraud's masterminds - particularly Low - to loot the fund so long as it continued to finance the UMNO political machine with off-the-books spending to "motivate" Malaysian voters to turn out and support the party, which long held sway over Malaysian politics.
Shares of both JPM and Deutsche Bank moved lower on the news in premarket trading on Monday.