Goldman Sachs Settles 1MDB Scandal for $2.9 Billion

The bank admits wrongdoing as part of the deal

Key Takeaways

  • Goldman Sachs will pay $2.9 billion to resolve probes into its role in the 1MDB scandal.
  • As part of the settlement, the bank's current and former CEO had part of their past compensation clawed back.

The U.S. Department of Justice (DOJ) has been very busy lately. Today, it announced that Goldman Sachs agreed to pay more than $2.9 billion to regulators to resolve probes into its role in what is known as the 1MDB scandal involving the government of Malaysia, a corrupt investment fund (1MDB), and a subsidiary bank owned by Goldman. 

DiCaprio, Brando's Oscar, and The Wolf of Wall Street

In 2012 and 2013, Goldman helped raise $6.5 billion for 1MDB by selling bonds to investors. The DOJ says much of that money was stolen by an adviser to the fund named Jho Low, abetted by two Goldman bankers and associates in the Malaysian and Emirati governments. Some of the money raised went to fund The Wolf of Wall Street, the Oscar-nominated blockbuster directed by Martin Scorsese, starring Leonardo DiCaprio (above) as Jordan Belfort, which grossed $392 million at the box office.

The producer of the film, Riza Aziz, who is the stepson of former Malaysian prime minister Najib Razak, has been charged with embezzling millions of dollars from the Malaysian government. He reportedly gave DiCaprio the Best Actor Oscar trophy Marlon Brando won for On the Waterfront in 1955 as a gift worth an estimated $600,000. DiCaprio was forced to return that gift as part of the investigation.

Admitting Wrongdoing

Goldman didn't just have to write a check and move on. In an unusual move for this type of settlement, Goldman had to admit wrongdoing. “Goldman Sachs today accepted responsibility for its role in a conspiracy to bribe high-ranking foreign officials to obtain lucrative underwriting and other business relating to 1MDB,” Acting Assistant Attorney General Brian C. Rabbitt of the Justice Department’s Criminal Division said in a release. The announcement, “which requires Goldman Sachs to admit wrongdoing and pay nearly $3 billion in penalties, fines, and disgorgement, holds the bank accountable for this criminal scheme.”

CEO David Solomon said Goldman is pleased to conclude the process and put "these matters behind us." He noted that the investigation emphasized that everyone at the firm must take responsibility for each other's actions and adequately address red flags. "Nearly two years ago, I said to all of you that our obligation is to be self-reflective and self-critical. That is more important than ever today," Solomon said. 

Compensation Clawback

And Goldman Sachs wasn't the only one paying up. As part of the settlement, former CEO Lloyd Blankfein and Solomon had part of their past compensation clawed back as part of the restitution payments, according to the Wall Street Journal. The clawback was enforced because the DOJ said Blankfein and Solomon, who were the CEO and COO, respectively, at the time, did not properly oversee their bankers. The details of those clawbacks were not disclosed.

Solomon noted that the action regarding compensation of current and former executives is "entirely appropriate under the circumstances."

Article Sources
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  1. The Guardian. "1MDB: Wolf of Wall Street producer charged with embezzling millions."

  2. U.S. Department of Justice. "Goldman Sachs Charged in Foreign Bribery Case and Agrees to Pay Over $2.9 Billion."

  3. Goldman Sachs. "Goldman Sachs’ Statements Relating to 1MDB Government and Regulatory Settlements."

  4. The Wall Street Journal. "Goldman Sachs Executives to Forfeit $174 Million in 1MDB Punishment."

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