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A Beverly Hills Hotel, Bought With Looted Money, Goes on Sale

For sale: Boutique hotel, convenient to Hollywood. 116 rooms, rooftop pool, jet-setting clientele. Previous owner spent $40 million on renovations before becoming an international fugitive. Asking price: $100+ million.

If that sounds like a steal — even in the middle of a global pandemic that has nearly ground travel to a halt — the Viceroy L’Ermitage Beverly Hills could be yours. Just contact the U.S. government.

Prosecutors moved to seize the hotel, about a mile from Rodeo Drive, in 2016 as part of a long-running investigation into one of the biggest foreign bribery and kleptocracy cases in history: the looting of more than $2.5 billion from a Malaysian sovereign wealth fund, 1Malaysia Development Berhad, known as 1MDB.

The property was commandeered from Jho Low, a financier turned fugitive whom authorities in the United States and Malaysia described as the architect of a brazen scheme that also ensnared a prime minister and one of Wall Street’s most powerful banks, Goldman Sachs. The stolen money was used to buy everything from paintings by Van Gogh and Monet to a custom-built yacht to a see-through grand piano. Some of the cash helped finance “The Wolf of Wall Street,” which earned Leonardo DiCaprio a Golden Globe for his performance as the stock-market scammer Jordan Belfort.

Now the hotel — the last of Mr. Low’s marquee properties to be sold by federal authorities — is being auctioned off, with proceeds to be split between the governments of Malaysia and the United States.

Viceroy, which operates the hotel, charges about $600 a night on average for rooms it markets as a “home-away-from-home for Hollywood elite, international dignitaries and jet-setting luxury travelers.” Federal authorities in Los Angeles and Washington are hoping to sell it for well north of $100 million in an auction this summer, according to people briefed on the matter.

“Luxury hotels in Beverly Hills don’t often come up for sale,” said Michael M. Eidelman, a Chicago bankruptcy lawyer hired as the special master for the auction. “We have received inquiries from a number of different groups, and groups from a number of different countries.”

Credit…Viceroy L’Ermitage Beverly Hills

But how aggressive the bidding will be remains an open question, with the future of the tourism industry very much in doubt. A resurgence of coronavirus infections is putting off — or reversing — reopening plans throughout the country, just as hotels were getting a chance to claw out of the hole opened up by lockdown orders.

Balance sheets are feeling the effects. A week ago, Blackstone Group, the big private equity firm, reported that it had missed a payment on a $274 million loan to four hotels that were in financial trouble even before the pandemic. In May, Tom Barrack’s Colony Capital said it was in default on $3.2 billion in debt for some 245 hotels in its portfolio.

Luxury properties have been hit particularly hard. Fitch Ratings, the credit rating firm, estimates that occupancy levels at those hotels were under 9 percent, partly because many have simply closed for now. The industry over all has been running at around 40 percent occupancy. It could take a long time to get back to normal: STR, a hospitality industry data firm, said it did not expect occupancy to rise above pre-pandemic levels before 2023.

But federal authorities aren’t interested in waiting to wrap up the five-year investigation into 1MDB. One of history’s most complex kleptocracy cases, it toppled the government of the former Malaysian prime minister Najib Razak and prompted a foreign bribery investigation of Goldman Sachs.

One former Goldman banker, Tim Leissner, has already pleaded guilty. He said he and others at the bank had conspired to circumvent internal controls to work with Mr. Low, paying bribes to officials in Malaysia in order to issue the bonds that raised money for the fund, which was intended to finance infrastructure projects in Malaysia. Mr. Leissner, who is married to the fashion designer and model Kimora Lee Simmons, agreed to forfeit up to $43.7 million.


Credit…Scott Roth/Invision, via Scott Roth, via Invision, via Associated Press

Goldman itself has been in talks with federal prosecutors. The bank lobbied the top brass at the Justice Department this year to let it reach a settlement without having to enter a guilty plea to a felony charge. The bank and nearly two dozen employees have been charged with fraud in Malaysia as well, and Goldman has argued that any fine it pays to the federal government should take into account the penalties it could face overseas.

Mr. Low, who has never appeared in federal court to respond to fraud charges, has maintained that he did nothing wrong, according to his lawyers and representatives.

The forfeiture actions involving Mr. Low and his associates have moved on a separate track from the criminal investigation, led mainly by prosecutors in Los Angeles and Washington. In all, federal authorities have seized assets worth as much as $900 million, including Mr. Low’s investment interests in the EMI music publishing portfolio, the Park Lane Hotel in New York, the production rights to three Hollywood movies and a luxury shopper’s list of other assets.

In October, Mr. Low — who is believed to be living in China — and his associates gave up all claims to the seized property. Some has already been sold: Mr. Low’s stake in the EMI portfolio went to Sony for $415 million in 2018, and his share of the Park Lane Hotel, which overlooks Central Park, was sold last year for $139 million.

Federal prosecutors say that, so far, they’ve returned about $500 million to the people of Malaysia from selling seized assets. And they’re still looking for more: On Wednesday, the Justice Department said it was seeking the forfeiture of $96 million in cash and property, including accounts in Luxembourg and Switzerland, real estate in Paris, and two paintings by Andy Warhol.

Malaysia is seizing and selling, too. It collected an additional $126 million from the sale of Mr. Low’s superyacht, a 300-foot vessel with a helipad and 11 guest cabins. The Malaysian government also confiscated tens of millions of dollars in cash, gold and jewelry from Mr. Najib, who is trying to make something of a political comeback even as he stands trial there on corruption charges.


Credit…Viceroy L’Ermitage Beverly Hills

Mr. Low acquired the Viceroy L’Ermitage for about $40 million in 2010, and later spent the same amount on renovations. The latest sale began in earnest last month with Mr. Eidelman, the special master, and a broker soliciting so-called stalking horse bids, which set a minimum price to discourage frivolous buyers. The auction is expected to be completed sometime this summer, and the government has the right to reject any prospective bidder after a background check.

The buyer will have the right to terminate the management contract of Viceroy, which also runs luxury hotels in several other U.S. cities and Latin America. A spokeswoman for Viceroy declined to comment.

The sale of the L’Ermitage could be a signal of what awaits any other luxury properties that land on the auction block because of bankruptcy filings or foreclosures caused by the pandemic.

The newly reopened Mark Hotel in Manhattan, one of New York’s most exclusive hotels, successfully fended off an attempt by one of its lenders to force a foreclosure auction after it missed an interest payment on a $35 million loan. A New York judge temporarily blocked the foreclosure last month, saying that a small creditor was trying to take advantage of the pandemic to seize control of a hotel worth nearly a half-billion dollars.

Before the judge scuttled the sale, a representative for the lender said in court filings that at least 115 groups had expressed interest in bidding for the Mark Hotel. If that claim is true, Mr. Eidelman may be right in assuming there will be keen interest in the L’Ermitage.

If the country continues to reopen, said Stephen Boyd, a senior director at Fitch Ratings, luxury hotels could rebound faster than other lodgings. The reason: Their guests are ones “who still have jobs and still have money.”

Alexandra Stevenson contributed reporting.

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What to Expect From White-Collar Prosecutions in 2020

The new year promises to be an interesting one in white-collar crime.

Goldman Sachs is negotiating with the Justice Department to pay a penalty of about $2 billion for its role in the 1Malaysia Development Berhad scandal, known as 1MDB.

Accounting fraud became a particular focus of the Justice Department toward the end of 2019. In December, federal prosecutors indicted executives from Outcome Health and MiMed, and opened an investigation into whether BMW, the German automaker, manipulated its sales figures. Here’s a look:

The Malaysian authorities have indicted 17 Goldman Sachs executives on allegations that they played roles in siphoning off about $2.7 billion of the $6.5 billion raised for the 1MDB fund. How that case will be resolved is an open question because the Malaysian authorities are looking to recoup all of the money raised on behalf of 1MDB.

In the United States, federal prosecutors are looking at possible money-laundering and Foreign Corrupt Practices Act violations by Goldman. A settlement could include a guilty plea by its Asian subsidiary, which Goldman would then most likely put out of business.

Any settlement Goldman reaches with the federal authorities is unlikely to hamstring the bank. The Securities and Exchange Commission has shown a willingness to waive its “bad actor” rules, which bar financial institutions from offering securities to the public. And the large fines and guilty pleas that Citigroup, JPMorgan Chase, Barclays, Royal Bank of Scotland and UBS agreed to in 2015 for manipulating foreign currencies did not cripple those banks.

Any settlement with the Justice Department and the S.E.C. is likely to require Goldman to have an outside monitor to ensure that it did not violate securities laws in the future. But that would most likely be just another cost of doing business for the firm, which would certainly be able to survive any issue arising from the monitoring.

Criminal prosecutions for accounting fraud are uncommon, but late last year, prosecutors took a much more aggressive position in accusing senior executives of violating accounting rules.

In December, federal prosecutors indicted a co-founder of Outcome Health, Rishi Shah; the company’s former president, Shradha Agarwal; and its chief financial officer, Brad Purdy, of money laundering and mail and wire fraud for making false statements to a bank to obtain almost $1 billion in loans and equity investments.

The Justice Department also charged the former MiMedx executives Praker Petit and William Taylor of “channel stuffing” by selling more products to distributors than they needed, to “juice” corporate sales. According to the indictment, MiMedx “did not meet the low end of its revenue guidance until the very last day of the quarter in each of the four quarters of 2015.” That is sure to arouse suspicions about whether the sales were legitimate.

If federal prosecutors can convince a jury that the defendants violated the securities law, substantial prison terms are likely.

The issue for BMW will be whether its reporting of vehicle sales also misled investors. The S.E.C. is investigating whether the company manipulated figures to make it appear healthier than it was. If it is found to have done so, the company could face a substantial penalty.

In September, Fiat Chrysler paid $40 million to settle claims that it used dubious practices to inflate its sales. The S.E.C. concluded that Fiat Chrysler had provided inaccurate information to investors, in violation of federal securities laws.

The House of Representatives passed the Insider Trading Prohibition Act, which for the first time would specifically define what constituted insider trading and expand what could be prosecuted.

If Senate approval follows and the legislation becomes law, any person “while aware of material, nonpublic information relating” to a company could be considered liable for insider trading. Communicating confidential information to others, the tippees, would be prohibited so long as the information “would reasonably be expected to have a material effect on the market price” of any security.

The legislation also covers obtaining information by “theft, bribery, misrepresentation or espionage” along with any “conversion, misappropriation, or other unauthorized and deceptive taking of such information.” That would subject many means of obtaining confidential information to the new prohibition on insider trading.

Providing a definition would be a substantial step forward for insider trading prosecution because prosecutors have had to rely on the courts to define what is — and is not — insider trading. We’d be likely to see an expansion of what types of conduct could be subject to prosecution. Whether that is a good thing remains to be seen.

Even if the legislation is not adopted, a ruling at the end of 2019 will make it easier for the Justice Department to pursue insider-trading cases.

A federal appeals court upheld the insider-trading convictions in United States v. Blaszczak. The court found that a securities fraud statute added to the Dodd-Frank Act does not require prosecutors to prove that the tipper received a personal benefit from the tippee. This is likely to allow prosecutors to pursue more cases that involve trading on confidential information without requiring proof that there was a quid pro quo exchange.

Whether that, too, is a good thing also remains to be seen.


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