Goldman Sachs will cut back its top executives’ compensations depending on the consequence of investigation into the bank’s role in a multibillion-dollar Malaysian fund scandal.
In a regulatory filing, Goldman announced that its board could reduce or forfeit the stock-based awards granted to its tier-one executives in 2018. Such a scenario could affect former CEO and Chairman Lloyd Blankfein and current CEO David Soloman. While Blankfein was guaranteed to receive $18.5 million in annual variable compensation, which included $14.245 million in the form of restricted stock units (RSU), Soloman was promised circa $15.4 million in RSU as a part of his 2018’s compensation of $21.1 million.
1MDB Bribery Scandal
As covered by CCN earlier, the scandal centers on a Malaysian state investment fund called 1Malaysia Development Berhad. It was set up by the former prime minister Najib Razak for the country’s economic development after he assumed office in 2019. Goldman raised $6.5 billion in bonds for 1MDB in 2012 and 2013.
However, the fund came under a global regulatory spotlight after the Securities Commission Malaysia accused it of stealing $2.7 billion. Last year, the US Justice Department said that the total losses reached as high as $4.5 billion, adding that Goldman Sachs misused half of the money to pay for fine art and jewellery, and to pay bribes and kickbacks.
While regulators around the world are scrutinizing the case, Tim Leissner, the former chairman of Goldman’s Southeast Asia subsidiary, pleaded guilty to conspiring and stealing from the 1MDB fund. He admitted that the banking giant used to encourage illegal financial activities.
Leissner said in his court statement in early November 2018:
“It was very much in the line of its culture of Goldman Sachs to conceal facts from certain compliance and legal employees.”
Goldman Sachs denied allegations repeatedly, justifying that it was misled by miscreant employees who deceived legal compliance on their own accords.
Criminal Charges against Goldman Sachs
In December, Malaysia’s attorney general Tommy Thomas filed criminal charges against Goldman Sachs International and two of its Asian divisions. He also mentioned Tim Leissner, alongside Jho Low, a central figure in the 1MDB scandal, now a fugitive, and former 1MDB attorney Jasmine Loo in the court filing.
Thomas told WSJ:
“Malaysia considers the allegations in the charges against the accused to be grave violations of our securities laws, and to reflect their severity, prosecutors will seek criminal fines against the accused well in excess of the $2.7 billion misappropriated from the bonds proceeds and $600 million in fees received by Goldman Sachs, and custodial sentences against each of the individual accused: the maximum term of imprisonment is 10 years.”
In totality, both Blankfein and Soloman are looking at potential losses worth $40 million. According to a source mentioned at CNN, Mike Evans and Michael Sherwood, two former top executives with Goldman, could also face similar penalties if the bank ends up paying billions of dollars in fines to the Malaysian regulators.