(29 June): Over the worldwide bribery scandal involving 1Malaysia Development Bhd (1MDB), Goldman Sachs Group Inc, former CEO Lloyd Blankfein, and former chief operating officer Gary Cohn must face a shareholder lawsuit. Yesterday in Manhattan, US District Judge Vernon Broderick refused Goldman, Blankfein, and Cohn’s motions to dismiss the lawsuit brought by Swedish pension fund Sjunde AP-Fonden, but eliminated former co-chief operating officer Harvey Schwartz from the case.
In late 2018, shareholders sued Goldman Sachs, alleging that the bank misled them about its work with the sovereign wealth fund, for which the bank orchestrated bond sales for US$6.5 billion. The firm has denied any involvement in the incident, blaming former partner Tim Leissner, who has pled guilty and is collaborating with the authorities.
The 1MDB scandal has sparked court cases all over the world as Malaysian authorities fight to recover more than US$4 billion stolen from the country’s development fund.
The judge ruled that the shareholders had sufficiently alleged that the bank and its top officials made false and misleading representations concerning the 1MDB scandal. Blankfein’s statement in a 2018 interview that he was “not aware” of any red signals, as well as Cohn’s chairing of a committee that cleared Goldman’s 1MDB dealings, were cited as instances. Broderick discovered that the suit contained no allegations about Schwartz’s involvement in those transactions.
“If these claims are genuine, I don’t believe Blankfein was unaware of any warning indications regarding 1MDB prior to the scandal erupting,” Broderick added.
Goldman Sachs did not respond to a request for comment on the decision. A lawyer for the corporation and the executives, Sharon L Nelles, did not immediately respond to an email requesting comment. The shareholders had not demonstrated that the misstatements were material to investors, were false or omitted information, or that the bank meant to deceive shareholders or caused their losses, according to the bank.
While the judge stated that Goldman’s statement that it is “dedicated to complying fully with the letter and spirit of the law, rules, and ethical principles that govern us” would normally be considered “puffery” and thus immune from claims of being misleading, he added that other courts have found that such statements can be subject to legal action when “paired with unlawful behavior or other actionable statements.”
Goldman Sachs and its Malaysian subsidiary have acknowledged to conspiring to break a US anti-bribery law. Goldman made more than US$600 million in fees, according to the US, by making illegal payments to officials in Malaysia and Abu Dhabi in order to win and keep business from 1MDB.
From 2009 to 2014, Leissner, one of Goldman’s top bankers in Asia, acknowledged to conspiring to launder money and breaking US anti-bribery rules as part of a payoff scheme to win 1MDB’s business.
Last year, Goldman’s Malaysian branch pled guilty and agreed to pay a fine of more than US$2.3 billion, the highest payment in American history for breaking anti-bribery rules. By participating in a payoff scheme to secure 1MDB’s business, Leissner acknowledged to conspiring to launder money and breaking US anti-bribery statutes.
Plaut v. Goldman Sachs Group Inc, 18-cv-12084, Southern District of New York, US District Court (Manhattan). Continue reading
