KUALA LUMPUR, Malaysia (July 9): The Malaysian government, the Ministry of Finance Inc (MoF Inc), 1Malaysia Development Bhd (1MDB), and various companies have filed a US$5.64 billion lawsuit against 44 KPMG Malaysia partners who worked as 1MDB’s auditors during that time. The action claimed negligence and breach of contract in the audit and certification of 1MDB’s financial accounts for the fiscal years ending March 31, 2010, FY11, and FY12.
After refusing to sign off on the FY13 accounts, KPMG was fired as auditor.
Other plaintiffs include 1MDB Energy Holdings Ltd (1MEHL), 1MDB Energy Ltd (1MEL), 1MDB Energy (Langat) Ltd (1MELL), and Global Diversified Investment Company Ltd, formerly known as 1MDB Global Investment Company Ltd, in addition to 1MDB, the government, and MoF Inc.
On their behalf, Messrs Shearn Delamore filed a 148-page statement of claim.
Shearn Delamore has filed a second lawsuit linked to 1MDB. They also sued Riza Aziz, his production company Red Granite Pictures Inc, Red Granite Capital Ltd, and Shearman & Sterling, a law firm in New York.
In May, 1MDB also filed twenty-two legal cases against other parties.
Deloitte PLT, which took over as auditor when KPMG was fired, and 1MDB and its erstwhile affiliate SRC International Sdn Bhd had concluded their disagreement. Last month, Deloitte contributed US$80 million (RM336 million) to the government’s 1MDB recovery trust account.
Breach of contract and negligence are alleged to have occurred.
According to the plaintiffs’ statement of claim, between 2009 and 2014, US$5.64 billion was looted from 1MDB and its connected businesses for the benefit of former Prime Minister Datuk Seri Najib Razak and his cronies or nominees.
During the three financial years that KPMG was the auditor, namely FY10, FY11, and FY12, a total of US$3.197 billion was misappropriated.
According to the statement of claim, Ernst & Young (E&Y) was originally hired to audit 1MDB’s books, but it was unable to complete the audit due to a lack of adequate audit evidence in respect of the fair value and recoverability of 1MDB’s putative investment in its early joint venture (JV).
As a result, in September 2010, Najib ordered the removal of E&Y as 1MDB’s statutory auditor and the appointment of KPMG. KPMG began its audit on September 14, 2010 and pledged to finish it in 18 days or less by October 4, 2010. On October 4, 2010, the audit company provided an unqualified audit opinion.
PetroSaudi has formed a joint venture.
According to the statement of claim, after obtaining the RM5 billion Islamic Medium Term Notes (IMTN), 1MDB formed a joint venture with PetroSaudi International, in which a sum of US$1 billion was agreed in exchange for 40 percent of the equity stake in 1MDB PetroSaudi Ltd, a British Virgin Islands registered company.
Instead of money flowing to the JV company, 1MDB PetroSaudi, a sum of US$700 million was diverted to Good Star Ltd, a Low Taek Jho-controlled company.
The plaintiffs claim that in June 2010, Najib and 1MDB management, acting on his orders, attempted to inflate the value of 1MDB’s participation in the JV with PetroSaudi by restructuring its 40% equity holding into the Murabaha Notes.
The reorganization was backdated to March 31, 2010, after the company made a profit of RM652 million in the previous fiscal year. This allowed 1MDB to record a total profit of RM425 million in that financial year (rather than a deficit of RM227 million), effectively hiding the misuse of cash from 1MDB.
In or around September 2010, Najib and his management fraudulently recorded a further investment of US$500 million by 1MDB in 1MDB PetroSaudi in the form of additional subscriptions of Murabaha Notes for the ostensible purpose of the JV company acquiring 4.23 percent of the equity in a publicly traded company in France, according to the statement of claim.
The anticipated acquisition was never completed, and the US$500 million was diverted to PetroSaudi and Najib-connected businesses, to the disadvantage of 1MDB.
In May 2011, Najib and the 1MDB administration illegally forced a further alleged investment of US$330 million in 1MDB PetroSaudi in the form of more Murabaha Notes, ostensibly to fund its purported oil and gas operations. However, the 330-million-dollar sum was once again plundered by Good Star.
The plaintiffs alleged that during KPMG’s time as 1MDB’s auditors, none of the illegal transactions and misappropriations carried out under Najib’s orders and carried out by the then administration were detected.
Instead, they claimed that KPMG delivered unqualified audit opinions on 1MDB’s financial accounts from FY10 to FY12.
The plaintiffs claimed that, contrary to KPMG’s audit reports, the audited financial statements for those years did not present an accurate and fair picture of 1MDB’s financial operations.
The plaintiffs further alleged that revealing the genuine audit picture would have prevented subsequent transactions or bond issuances that would have led to transactions in the Tanore and Aabar phases in 2013 and 2014, resulting in more misappropriations.
As a result, the plaintiffs are seeking US$5.644 billion from KPMG as a result of misappropriated monies totaling US$1.83 billion from the bogus PetroSaudi JV and US$1.367 billion from 1MDB to Aabar British Virgin Islands (BVI) for security deposits.
Misappropriation of US$1.59 billion from the proceeds of 1MDB Global Investment Ltd bonds to Overseas Investment Funds, and misappropriation of US$856,317 million from the proceeds of two syndicated term loans procured by 1MEHL to Aabar BVI and Aabar Seychelles purportedly to extinguish what was known as the Aabar Options
According to the statement of claim, interest of at least US$1.43 billion has accumulated from the US$5.64 billion as of May 6 this year.
Najib is currently facing a slew of criminal allegations relating to SRC and 1MDB transactions in five separate trials, one of which regarding SRC has already completed with him receiving a 12-year term and an RM210 million fine. He intends to appeal the decision.
In addition to Deloitte, Goldman Sachs and AmBank have paid US$2.5 billion and RM2.83 billion to 1MDB as settlements for their roles in the crime involving bonds they helped raise.
Malaysia has received RM336 million from Deloitte as part of a 1MDB-related settlement — MoF/n
