For a while, it looked as if Lloyd Blankfein, Gary Cohn and other senior Goldman executives who were around when the firm first started doing business with 1MDB, the Malaysian sovereign wealth fund that was plundered by associates of former PM Najib Razak while also being utilized as a political slush fund (the money was supposed to be used on public works projects in poor Malaysia).
Although Blankfein and others were forced to return some of their bonus pay, Gary Cohn - who left the bank to serve as Trump's top economic advisor for a brief time before being unceremoniously ousted from the West Wing - appeared to have successfully snubbed the bank's claw-back attempts, refusing to turn over $10MM that the bank demanded.
But while Blankfein and others have escaped criminal liability, it looks like they won't be so lucky on the civil front.
Blankfein and Cohn must face a shareholder lawsuit over the 1MDB global bribery scandal, a judge ruled yesterday. US District Judge Vernon Broderick denied requests from Goldman, Blankfein and Cohn to dismiss a shareholder lawsuit led by Swedish pension fund Sjunde AP-Fonden. However the judge did drop former co-COO Harvey Schwartz from the case.
Shareholders initially sued Goldman Sachs in late 2018, accusing the bank of misleading them about the firm’s work with the sovereign wealth fund, for which the bank arranged $6.5 billion in bond sales. The firm has denied culpability in the scandal and laid the blame on Tim Leissner, a former partner who has pleaded guilty and has cooperated with prosecutors in their criminal case against Goldman (which ended in a settlement).
Although the scandal has been memorialized in the best-selling book "Billion Dollar Whale", Malaysian authorities are still trying track down more than $4 billion that was siphoned from the fund, though Goldman has already agreed to pay $4 billion to the Malaysian government.
In the Manhattan lawsuit, the judge ruled that shareholders had adequately alleged that several statements made by the bank and its top executives about the 1MDB case were false and misleading. Among the examples cited were Blankfein's comment in a 2018 interview that he was "not aware" of any red flags (despite having personally met with the fugitive financier at the center of the scandal) and Cohn's leadership of a committee that approved Goldman's 1MDB deals. Broderick found that the suit hadn't made any allegations of Schwartz’s involvement in these deals, and so he was dropped from the lawsuit. The judge even went so far as to proclaim that Blankfein's claims of ignorance are "hard to believe".
"Taking these allegations as true, I find it unlikely that Blankfein would not have been aware of any warning signs about 1MDB prior to the scandal breaking," Broderick said.
While the judge said that Goldman's statements about being "dedicated to complying fully with the letter and spirit of the law" would have been considered "puffery" in the past, making it immune to claims the bank was misleading shareholders, the judge said that other courts have ruled that statements like this can be subject to legal action when "paired with unlawful behavior or other actionable statements."
Bloomberg's Matt Levine likes to joke in his column "Money Stuff" that "everything is securities fraud" - meaning that seemingly any wrongdoing perpetrated by a major public company can be construed as manipulation or fraud if shareholders can make the case that they weren't informed about it ahead of time.
That's essentially what's going on here - with the twist that two corporate officers of the institution might be held personally liable as well.