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Goldman Resolves 1MDB Legal Case, To Pay $3.9B to Malaysia
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Finally, the long-awaited, the multibillion-dollar 1Malaysia Development Berhad (1MDB) scandal, in which Goldman Sachs (GS - Free Report) is engulfed, was resolved last week. Notably, the U.S. bank reached an agreement in principle with the Government of Malaysia, resolving all the criminal and regulatory proceedings in Malaysia. The settlement also included pending criminal proceedings against Goldman’s subsidiaries, and certain of their current and former directors.
The settlement agreement includes the payment of $2.5 billion as penalties to the Government of Malaysia. Also, Goldman has guaranteed that the Malaysian government would receive $1.4 billion from the proceeds of assets, which have been seized globally as those were related to the 1MDB scandal. Notably, the guarantee on these assets does not expose Goldman to any significant risks.
It is being anticipated that the bank might increase its provisions for litigation and regulatory proceedings recorded for the second quarter, which is likely to be notified in the Form 10-Q for the quarter ended Jun 30, 2020.
Goldman has noted, “We are pleased to have reached an agreement with the Government of Malaysia to resolve outstanding charges and claims against Goldman Sachs. Today’s settlement is an important step towards putting the 1MDB matter behind us and will help enable the Malaysian government to move forward with additional recovery efforts and to execute on its economic priorities. There are important lessons to be learned from this situation, and we must be self-critical to ensure that we only improve from the experience.”
Nevertheless, other pending governmental and regulatory investigations, including the U.S. government, would continue on Goldman related to the 1MDB scandal.
Background
Goldman has been scrutinized for playing a role in raising funds through bond offerings for 1MDB, the fund entangled in corruption and money-laundering probes in roughly six countries. Per the DoJ, misappropriation of funds, worth $4.5 billion, from 1MDB by top officials of the fund and their colleagues from 2009 through 2014, included funds raised through Goldman as well.
Therefore, regulators of around 14 countries, including the United States, Malaysia, Singapore and others, have probed Goldman for its role as an underwriter and doings during the transactions.
Further, in November 2018, criminal charges were levied against two former bankers — Tim Leissner and Roger Ng of Goldman by U.S. prosecutors, as well as on Low — a Malaysian financier, who effectively had the control of the state-owned investment 1MDB. Low has been accused for routing the money out of 1MBD, and paying bribes and purchasing real estate, art, and jewelry. Nevertheless, the bond proceeds were meant for strategic investments for the state.
Per DoJ, roughly $600 million was earned by the bank, including three bond offerings in 2012 and 2013, which raised $6.5 billion. In addition, huge bonuses were earned by Leissner, Ng and others. Nevertheless, Goldman claimed Leissner and Ng were working to hide criminal activities from management.
In 2018, Leissner accepted the act of conspiracy for laundering money and plotting the violation of the Foreign Corrupt Practices Act. He made profits from the scheme and had contracted to pay up to $43.7 million. Nonetheless, the other employee has not come with a plea yet and is facing a case in Brooklyn’s federal court.
Remarkably, criminal charges against Goldman and 17 executives had been filed by prosecutors in Malaysia, who were demanding a multibillion-dollar penalty seeking fines of more than $2.7 billion. This was believed to be allegedly misappropriated from the proceeds, and the return of $600 million of fees taken by Goldman.
Malaysian politics was adversely impacted by the scandal and lifetime bans were imposed on Goldman bankers, including Andrea Vella and Tim Leissner, by the financial industry.
Notably, the case which involved the bank’s three units had been on hold due to restrictions imposed by Malaysia since March to contain the coronavirus pandemic. This February, the case got transferred to the High Court, and advanced with the proceedings of the criminal charges first announced in December 2018.
Bottom Line
Although Goldman has resolved quite a few litigation issues, it still faces probes and queries from a number of federal agencies, and a few foreign governments for the bank’s businesses conducted during the pre-crisis period. As a result, the company’s legal expenses are expected to remain elevated, which might partially impede its bottom-line growth in the near term.
Goldman currently carries a Zacks Rank #3 (Hold). Shares of the company have lost 15.4% in the past six months compared with the 12.6% decline registered by the industry.
Stocks to Consider
TD Ameritrade Holding Corporation (AMTD - Free Report) has witnessed upward earnings estimate revisions for fiscal 2020 over the past 60 days. Moreover, this Zacks #1 Ranked (Strong Buy) stock has lost 21.9% over the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.
GAIN Capital Holdings, Inc.’s current-year earnings estimate moved north in 60 days’ time. Further, the company’s shares have surged 57.8% over the past six months. At present, it holds a Zacks Rank of 2 (Buy).
Interactive Brokers Group, Inc. (IBKR - Free Report) has witnessed upward earnings estimate revision for the ongoing year in the past 60 days. This Zacks #1 Ranked stock has gained 5.1% in six months’ time.
Zacks Top 10 Stocks for 2020
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2020?
Last year's 2019 Zacks Top 10 Stocks portfolio returned gains as high as +102.7%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
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Goldman Resolves 1MDB Legal Case, To Pay $3.9B to Malaysia
Finally, the long-awaited, the multibillion-dollar 1Malaysia Development Berhad (1MDB) scandal, in which Goldman Sachs (GS - Free Report) is engulfed, was resolved last week. Notably, the U.S. bank reached an agreement in principle with the Government of Malaysia, resolving all the criminal and regulatory proceedings in Malaysia. The settlement also included pending criminal proceedings against Goldman’s subsidiaries, and certain of their current and former directors.
The settlement agreement includes the payment of $2.5 billion as penalties to the Government of Malaysia. Also, Goldman has guaranteed that the Malaysian government would receive $1.4 billion from the proceeds of assets, which have been seized globally as those were related to the 1MDB scandal. Notably, the guarantee on these assets does not expose Goldman to any significant risks.
It is being anticipated that the bank might increase its provisions for litigation and regulatory proceedings recorded for the second quarter, which is likely to be notified in the Form 10-Q for the quarter ended Jun 30, 2020.
Goldman has noted, “We are pleased to have reached an agreement with the Government of Malaysia to resolve outstanding charges and claims against Goldman Sachs. Today’s settlement is an important step towards putting the 1MDB matter behind us and will help enable the Malaysian government to move forward with additional recovery efforts and to execute on its economic priorities. There are important lessons to be learned from this situation, and we must be self-critical to ensure that we only improve from the experience.”
Nevertheless, other pending governmental and regulatory investigations, including the U.S. government, would continue on Goldman related to the 1MDB scandal.
Background
Goldman has been scrutinized for playing a role in raising funds through bond offerings for 1MDB, the fund entangled in corruption and money-laundering probes in roughly six countries. Per the DoJ, misappropriation of funds, worth $4.5 billion, from 1MDB by top officials of the fund and their colleagues from 2009 through 2014, included funds raised through Goldman as well.
Therefore, regulators of around 14 countries, including the United States, Malaysia, Singapore and others, have probed Goldman for its role as an underwriter and doings during the transactions.
Further, in November 2018, criminal charges were levied against two former bankers — Tim Leissner and Roger Ng of Goldman by U.S. prosecutors, as well as on Low — a Malaysian financier, who effectively had the control of the state-owned investment 1MDB. Low has been accused for routing the money out of 1MBD, and paying bribes and purchasing real estate, art, and jewelry. Nevertheless, the bond proceeds were meant for strategic investments for the state.
Per DoJ, roughly $600 million was earned by the bank, including three bond offerings in 2012 and 2013, which raised $6.5 billion. In addition, huge bonuses were earned by Leissner, Ng and others. Nevertheless, Goldman claimed Leissner and Ng were working to hide criminal activities from management.
In 2018, Leissner accepted the act of conspiracy for laundering money and plotting the violation of the Foreign Corrupt Practices Act. He made profits from the scheme and had contracted to pay up to $43.7 million. Nonetheless, the other employee has not come with a plea yet and is facing a case in Brooklyn’s federal court.
Remarkably, criminal charges against Goldman and 17 executives had been filed by prosecutors in Malaysia, who were demanding a multibillion-dollar penalty seeking fines of more than $2.7 billion. This was believed to be allegedly misappropriated from the proceeds, and the return of $600 million of fees taken by Goldman.
Malaysian politics was adversely impacted by the scandal and lifetime bans were imposed on Goldman bankers, including Andrea Vella and Tim Leissner, by the financial industry.
Notably, the case which involved the bank’s three units had been on hold due to restrictions imposed by Malaysia since March to contain the coronavirus pandemic. This February, the case got transferred to the High Court, and advanced with the proceedings of the criminal charges first announced in December 2018.
Bottom Line
Although Goldman has resolved quite a few litigation issues, it still faces probes and queries from a number of federal agencies, and a few foreign governments for the bank’s businesses conducted during the pre-crisis period. As a result, the company’s legal expenses are expected to remain elevated, which might partially impede its bottom-line growth in the near term.
Goldman currently carries a Zacks Rank #3 (Hold). Shares of the company have lost 15.4% in the past six months compared with the 12.6% decline registered by the industry.
Stocks to Consider
TD Ameritrade Holding Corporation (AMTD - Free Report) has witnessed upward earnings estimate revisions for fiscal 2020 over the past 60 days. Moreover, this Zacks #1 Ranked (Strong Buy) stock has lost 21.9% over the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.
GAIN Capital Holdings, Inc.’s current-year earnings estimate moved north in 60 days’ time. Further, the company’s shares have surged 57.8% over the past six months. At present, it holds a Zacks Rank of 2 (Buy).
Interactive Brokers Group, Inc. (IBKR - Free Report) has witnessed upward earnings estimate revision for the ongoing year in the past 60 days. This Zacks #1 Ranked stock has gained 5.1% in six months’ time.
Zacks Top 10 Stocks for 2020
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2020?
Last year's 2019 Zacks Top 10 Stocks portfolio returned gains as high as +102.7%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
Access Zacks Top 10 Stocks for 2020 today >>