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WASHINGTON: Goldman Sachs Group Inc, ridiculed after the 2008 financial crisis, just saw a decade of tarnished image repair as prosecutors and regulators around the world unleashed indictments and punishments against the bank after an investigation into the looting of 1MDB.
Goldman’s costs from the scandal skyrocketed past $ 5 billion yesterday, while a subsidiary pleaded guilty to a criminal charge in the United States for the first time in the company’s history. The parent company reached an agreement to avoid a conviction that could paralyze the business by promising to behave well.
In a rare reprimand, Goldman will also force CEO David Solomon and predecessor Lloyd Blankfein to forfeit the salary, attributing personal responsibility to two of the industry’s most visible leaders for a scandal sweeping the world.
But, perhaps worse for the bank, the settlements provide another bold look at the mechanics of a costly financial scheme involving the Wall Street giant, with court documents citing emails and internal conversations.
In its settlement with the US Department of Justice, the bank admitted that executives and other staff conspired to pay more than $ 1.6 billion in bribes to win business in Malaysia. That settlement includes the highest penalty ever established under the Foreign Corrupt Practices Act.
Since 2010, Goldman has not been in the limelight for such damning behavior; in that case, it claims that it deceptively sold mortgage-linked investments that drove investors’ losses in the 2008 credit crisis.
1MDB’s new deals with authorities on three continents threaten to focus critics’ attention on the company in an era of growing frustration with Wall Street’s success during an economic downturn and growing income disparity.
“I wouldn’t underestimate the impact of that backdrop,” said Peter Atwater, associate professor at William & Mary. “Goldman is very fortunate to resolve this today. If the social mood were to deteriorate, the financial cost and legal ramifications would be far more dire. “
The case focuses on the company’s fundraising work in 2012 and 2013 for 1MDB. Goldman’s investment banking group, led at the time by Solomon, raised $ 600 million from bond sales. The bank reached an initial agreement with Malaysia in July that included a payment of $ 2.5 billion.
From a Wall Street perspective, the latest series of deals was long overdue and the scale of the sanctions was in line with expectations. The bank said it would reserve an additional $ 250 million in the third quarter to cover the cost beyond previous reserves. Investors pushed the stock up 1.2% in New York.
“It’s a huge price,” Glenn Schorr, an analyst at Evercore ISI, said of the settlement payments. But “it’s the price they had to pay, I would say, having the flexibility to fully manage their business and focus on growing and moving the business forward.”
The agreements lift a legal cloud that formed during Blankfein’s tenure and remained until the Solomon handover two years ago. Since then, Solomon has faced public criticism for his decision to order two Gulfstream private jets to transport executives, his acceptance of a surge early in the pandemic and his appearance as a DJ at a Hamptons concert, where some attendees avoided distancing guidelines. Social. Those missteps seem quaint compared to Justice Department documents describing Goldman executives dismissing signs of corruption.
“This has been a long process and we are pleased to put these issues behind us. But we are not leaving behind the lessons learned from this experience, ”he wrote yesterday in a memo to staff. “We have to recognize where our firm fell short.”
Now, the 36-page deferred prosecution agreement the bank reached with US prosecutors is laden with new behind-the-scenes details that will become food for critics, from progressive activists to lawmakers. That chronicle comes at a time when polls suggest Democrats could take control of both houses of Congress and the White House in the November election.
It may be a good time for a company to establish itself with a management whose actors and priorities it knows. But it is an awkward time to be known as the bank at the center of an international conspiracy that poured ill-gotten public funds into high-end art, a super yacht, and even the Hollywood movie “The Wolf of Wall Street.”
