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Goldman Sachs Unit Pleads Guilty Over Fraud Scheme

Goldman Sachs admitted its Malaysian subsidiary “knowingly and willingly” conspired to violate the Foreign Corrupt Practices Act because some former employees paid bribes to officials in connection with the looting of a sovereign wealth fund, a scandal that toppled that country’s leader and triggered criminal cases that spanned the globe.

The subsidiary pleaded guilty to a conspiracy charge on Thursday in Brooklyn federal court, and the bank itself entered into a three-year deferred prosecution agreement to resolve one of the biggest scandals in the Wall Street giant’s long history.

Separate from the penalties the bank will pay, the board of Goldman Sachs said it was taking steps to withhold or recoup $174 million in compensation from current and former executives — including its chief executive, David Solomon, and his predecessor, Lloyd Blankfein — either in lost pay or the return of money already paid.

In a statement, Mr. Solomon said Goldman “fell short” in overseeing its employees.

“While it is abundantly clear that certain former employees broke the law, lied to our colleagues and circumvented firm controls, this fact does not relieve me or anyone else at the firm of our responsibility to recognize two critical realities,” Mr. Solomon said.

Mr. Blankfein, reached by phone, declined to comment.

All told, Goldman will pay billions in penalties and disgorgement in Malaysia, the United States and Hong Kong for its role in the looting of the 1Malaysia Development Berhad fund. The scandal ultimately brought down the government of Malaysia’s prime minister at the time, Najib Razak, and turned a financier with expensive tastes named Jho Low into an international fugitive.

As part of the plea deal, Goldman has agreed to a statement of facts compiled by federal authorities that it will not be able to dispute. That document outlines a number of internal control failings at Goldman that authorities said should have detected the wrongdoing by its former employees, as well as the involvement of Mr. Low in helping to arrange the deals and pay more than $1 billion in bribes to official in Malaysia.

“Other personnel at the bank allowed this scheme to proceed by overlooking or ignoring a number of clear red flags,” said Brian C. Rabbitt, acting assistant attorney general for the Justice Department’s criminal division, said during a news conference.

More than $2.7 billion raised for the fund in bond offerings arranged by Goldman financed lavish lifestyles for powerful Malaysians, including friends and family of Mr. Najib. The money bought paintings by van Gogh and Monet, a mega-yacht docked in Bali, a grand piano made of clear acrylic that was given to a supermodel as a gift, and a king’s ransom in jewelry. Pilfered money also financed a boutique hotel in Beverly Hills, a share of the EMI music publishing portfolio and the Hollywood movie “The Wolf of Wall Street.”

Goldman Sachs earned $600 million in fees to arrange the bond sales.

Federal prosecutors had already brought charges against two Goldman bankers and Mr. Low, who is believed to be living in China. One of the bankers, Tim Leissner, the husband of the fashion designer and model Kimora Lee Simmons, has pleaded guilty and agreed to forfeit up to $43.7 million.

Malaysian prosecutors also brought criminal charges against Goldman and more than a dozen executives, but the bank agreed in July to pay $2.5 billion to resolve that investigation. Goldman also pledged to cover any shortfall from the sale of $1.4 billion in assets that have been seized by prosecutors in the United States and Malaysia.

Much of the property seized belonged to Mr. Low, who has never appeared in court to face charges in the case. He has denied wrongdoing through representatives in the United States, but agreed last year to give up all claims to seized assets worth as much as $900 million.

While the legal saga is essentially over for Goldman, it will continue for some individuals: Mr. Leissner still awaits sentencing, and the other banker charged in the United States, Roger Ng, has pleaded not guilty and awaits trial. Another former Goldman executive, Andrea Vella, has been barred from the financial industry by the Federal Reserve. (Goldman’s board said it was taking steps to recoup tens of millions of dollars in compensation from them as well.)

In Malaysia, Mr. Najib was convicted last July in a corruption case and sentenced to up to 12 years in prison, but the sentence was stayed on appeal.

Mr. Low’s exact whereabouts remain a mystery.

This is a developing story. Check back for updates.

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Goldman Sachs Is Said to Admit Mistakes in 1MDB Scandal

An Asian subsidiary of Goldman Sachs will plead guilty to charges in the United States to resolve a foreign corruption and bribery case over the looting of billions of dollars from a Malaysian sovereign wealth fund, according to a person familiar with the agreement.

The Wall Street bank’s parent company will admit mistakes, the person said, but will not itself have to enter a guilty plea as part of the deal with federal prosecutors. The bank will also avoid the appointment of an outside monitor to review its compliance procedures.

The settlement, which also requires the bank to pay more than $2 billion in penalties to the Justice Department and U.S. securities and banking regulators, is scheduled to be formally announced on Thursday morning, according to two people briefed on the plans.

The agreement — negotiated over nearly two years with federal prosecutors in Brooklyn and the kleptocracy division of the Justice Department — ends an investigation into one of the worst scandals in the bank’s long history. But it is a black eye for Goldman, which has never before had to plead guilty in a federal investigation. And a statement of facts to be released with the settlement will put the bank in a poor light, according to two people familiar with the document.

A bank spokeswoman declined to comment. The terms of the guilty plea were first reported by The Wall Street Journal.

The scandal centered on the 1Malaysia Development Berhad fund, known as 1MDB, and spanned the globe. It brought down the government of Malaysia’s prime minister at the time, Najib Razak, and turned a financier with expensive tastes named Jho Low into an international fugitive.

More than $2.7 billion raised for the fund in bond offerings arranged by Goldman financed lavish lifestyles for powerful Malaysians, including friends and family of Mr. Najib. The money bought paintings by van Gogh and Monet, a mega-yacht docked in Bali, a grand piano made of clear acrylic that was given to a supermodel as a gift, and a king’s ransom in jewelry. Pilfered money also financed a boutique hotel in Beverly Hills, a share of the EMI music publishing portfolio and the Hollywood movie “The Wolf of Wall Street.”

All that and more were paid for with money raised by Goldman Sachs, which earned $600 million in fees to arrange the bond sales.

The fraud prompted criminal investigations in Malaysia and the United States.

Federal prosecutors brought charges against two Goldman bankers and Mr. Low, who is believed to be living in China. One of the bankers — Tim Leissner, the husband of the fashion designer and model Kimora Lee Simmons — has pleaded guilty.

In Malaysia, Mr. Najib was ousted as prime minister and charged with corruption. He was convicted last July and sentenced to up to 12 years in prison and fined nearly $50 million, but the sentence was stayed on appeal.

Malaysian prosecutors also brought criminal charges against Goldman and more than a dozen executives. In July, Goldman agreed to pay $2.5 billion to resolve that investigation. Goldman also pledged to cover any shortfall from the sale of $1.4 billion in assets that have been seized by prosecutors in the United States and Malaysia.

Earlier this year, Goldman lobbied the Justice Department seeking to limit the penalties it would face in the United States. The bank asked prosecutors in Washington to consider the amount it would pay to Malaysia when calculating its domestic penalties and sought to avoid a guilty plea by the subsidiary.

All told, the fines and restitution Goldman will pay over 1MDB are more than the $5 billion it paid in 2016 in a civil settlement over its role in marketing and selling faulty mortgage securities to investors in the run-up to the 2008 financial crisis.

A guilty plea by the bank itself could have caused complications for some of its businesses, but that outcome had not been seriously under consideration for months. The ramifications of a subsidiary guilty plea are less serious: In the past, the Securities and Exchange Commission has issued waivers allowing banks in similar situations to operate as normal. And the Department of Labor can grant a waiver to allow a bank to continue as a fiduciary for employee pension and retirement plans.

Goldman has long blamed rogue employees, including Mr. Leissner, a former top partner in Asia that the bank has said acted without approval. He pleaded guilty in 2018, saying that he and others at Goldman had conspired to circumvent the bank’s internal controls, allowing them to work with Mr. Low to bribe Malaysian officials and secure the bond deal.

As part of his plea, Mr. Leissner agreed to forfeit up to $43.7 million and cooperated with the investigation. Another former Goldman banker, Roger Ng, pleaded not guilty and is set to go on trial next year.

U.S. prosecutors also charged Mr. Low, who has never appeared in court to face charges but has denied wrongdoing.

Some within the bank were wary of Mr. Low, a flamboyant businessman who had befriended many Hollywood celebrities and was known for staging wild and extravagant parties in Las Vegas. The bank’s compliance department had rejected him as a client because it was unclear how he had amassed his wealth.

Even so, Mr. Low met in December 2012 with Lloyd C. Blankfein, who at the time was Goldman’s chairman and chief executive, at Goldman’s offices in New York. That was just a few weeks before the bank arranged the third bond deal for 1MDB.

The investigation of Mr. Low and the 1MDB scandal has been a multipronged affair.

On Tuesday, Elliott Broidy, a major fund-raiser for the Trump campaign in 2016, pleaded guilty to conspiring to violate foreign lobbying laws after accepting $9 million from Mr. Low to try to convince the Trump administration to end the 1MDB investigation, and take other steps. Mr. Broidy agreed to forfeit $6.6 million and to cooperate with prosecutors.

And a separate team of federal prosecutors in Los Angeles has been focused largely on recouping assets bought with the stolen funds. Mr. Low agreed last year to relinquish any claim to more than $900 million in assets that had been seized by the federal government, with much of those proceeds going back to Malaysia.

Kenneth P. Vogel and Nicole Hong contributed reporting.

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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.”

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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.

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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.

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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.