Goldman Fundraising For Failed Malaysian Wealth Fund Probed By NY Bank Regulator

The scandalous collapse of the Malaysian state wealth fund, 1MDB, which also happened to be a slush fund for president Najib, has been extensively covered on these pages (for those looking to catch up read herehere, here, here and here). And, like with every scandal involving the failure of a major financial conglomerate, Goldman Sachs was closely involved, or rather one specific Goldman banker: Tim Leissner.

Recall back in March we explained why by late January, Tim Leissner was irritated.

Irritated that Goldman wouldn’t support his move to Los Angeles to be with his famous wife Kimora Lee, irritated that the firm wouldn’t let him give an internship to the son of a shadowy, as-yet-unnamed go-between in a deal to finance a controlling stake in an Indonesian copper mine, and especially irritated that the bank seemed to be looking a lot harder at the deals he was working on in Southeast Asia in the wake of the 1MDB scandal.

And why shouldn't he be frustrated? After all, Leissner built Goldman’s SE Asia operation. Who is the executive committee to tell him he can’t pass out internships as bribes on the way to financing Indonesian copper mines? And as far as 1MDB goes, Leissner didn’t recall anyone in New York complaining when the bank raked in hundreds of millions in underwriting fees for the deals that helped finance Najib’s slush fund.

“It’s not my fault Najib messed the whole thing up,” Leissner must have been thinking.

(Leissner and Kimora)

In any case, Goldman had seen enough by the start of 2016, and sensing that the tide was shifting, decided to pull a Fabrice Tourre and prepare Leissner for the proverbial sacrifical offering.

As we also said in March, Leissner, once the crown banker jewel in the Squid’s Asian tentacle, had become a liability. Investigations into 1MDB were underway in the U.S., Singapore, Switzerland, Hong Kong and Abu Dhabi. Someone, somewhere, was going to get to the bottom of how this disastrously indebted “development bank” got itself into dire straits and at the end of the rabbit hole there’s going to a giant Vampire Squid.

So what did Goldman do? Well, they cooked up an excuse to cut a critical loose end, and as the WSJ wrote then, "Goldman placed Tim Leissner, the firm’s Southeast Asia chairman, on leave after a review of his email found that he had allegedly sent an unauthorized reference letter on behalf of an individual to another financial firm in 2015. The letter also included statements that Goldman believes to be inaccurate.”

That review led to Leissner’s previously reported “mystery” leave. As we wrote at the time, "whether or not Leissner's leave and decision to high tail it out of Singapore has anything to do with the 1MDB scandal is an open question, but the timing certainly looks curious." Although no one knew it then, Leissner had already resigned by the time news of his "vacation" hit the wires.

“The email review also came as Goldman [questioned] a potentially lucrative mining deal in Indonesia being led by Mr. Leissner because of the involvement of someone in the deal who the bank believed could hurt the firm’s reputation,” WSJ goes on to detail. “Bank investigators found that Mr. Leissner had offered an internship to a child of the individual.”

Ultimately, Goldman backed out of the deal. Leissner was incensed. At $50 million, it would have been the biggest deal for Goldman in the region since the 1MDB bond offerings.  

It seems fairly obvious that Goldman saw the writing on the wall here and simply ordered the firm's investigators to scour Leissner's e-mail for an excuse to fire him ahead of revelations about 1MDB. Now, some possibly make-believe person of questionable repute and a possibly make-believe internship Leissner was set to give this anonymous individual's son will be trotted out as the reason the most important banker in SE Asia just had to go.

Because clearly Goldman wouldn't want to damage its "sterling reputation."

The only thing that was missing in all of this was a formal probe, and that's precisely what was unveiled today when as Bloomberg reports, Goldman has drawn scrutiny from New York's Department of Financial Services, aka the local banking regulator, over fundraising for Malaysia’s embattled 1MDB fund.  As Bloomberg adds, the DFS has asked Goldman Sachs on Thursday to "swiftly report" on its internal review of more than $6 billion in bond sales for 1MDB.

In a letter, the New York bank regulator also asked Goldman to provide an overview, by June 14, of every investigation in the U.S. and abroad into its work for the imploded state wealth fund.

The New York bank regulator joins the U.S. Justice Department, Federal Reserve and Securities and Exchange Commission in examining Goldman’s dealings with 1MDB.

DFS has jurisdiction in the matter because it licenses banks chartered by the state of New York. Nationally chartered banks are regulated by the federal Office of the Comptroller of the Currency.

What happens next? The same thing that happens every time the noose around Goldman closes even remotely: Lloyd Blankfein sits down behind closed doors with "regulators" and cobbles out a settlement, call it $50 million, or about 20-25% of the total profits Goldman generated from its dealings with 1MDB over the years, and then throws Leissner, who according to recent reports had left Singapore and was living in Los Angeles, under the bus at which point another kangaroo court process takes place, and Leissner has to fork over a few dozen million out of his own pocket.

Naturally, nobody will go to prison.