(Dec 5): An obscure Swiss bank implicated in Malaysia’s 1MDB corruption scandal was involved in another trade with Goldman Sachs Group Inc in 2016 that exposed the Wall Street firm to unexpected losses.
Falcon Private Bank had been a key player in the 1MDB drama since the end of 2015, when it first surfaced as a suspected conduit for hundreds of millions of dollars siphoned from Malaysia’s investment fund. By July of 2016, Singapore regulators found “substantial” breaches of money-laundering regulations at Falcon.
Yet weeks later, Goldman Sachs entered into a trade with Falcon at the urging of controversial businessman Lars Windhorst, people with knowledge of the matter said.
Now, Falcon’s role in that trade is emerging at an uncomfortable time for Goldman Sachs. Regulators investigating 1MDB are said to be looking at how Goldman’s moneymakers allegedly dodged internal controls while helping the Malaysian fund amass more than $6 billion. The Falcon deal prompts a further question: why a sizable trade with an obscure firm mired in a money-laundering probe didn’t trip alarms.
Windhorst proposed a baked deal -- naming securities, prices, buyers and sellers, according to emails seen by Bloomberg. But the trade soon derailed as one party balked, briefly exposing Goldman to millions of dollars in losses, and eventually triggering a lawsuit by an executive it fired. He claims the firm scapegoated him to avoid scrutiny of its internal controls.
The trade happened in August 2016. By October of that year, Singapore regulators yanked Falcon’s license in their country and arrested the local branch manager. There’s no indication Goldman engaged in further trades with Falcon after that sanction. The Swiss firm has shifted its focus to cryptocurrencies and digital private banking.
Representatives for Goldman and Falcon declined to comment.
Goldman Sachs has said it is cooperating with investigations into 1MDB. While the firm hasn’t been charged with wrongdoing, prosecutors have accused some of its former executives of dodging internal controls and conspiring to pay bribes so they could win business raising billions of dollars for the fund, which Malaysian officials plundered. Shares of the New York-based firm fell 3.8% Tuesday, extending this year’s slump to 28%.
The troubled 2016 trade became a matter of public record this August when Chris Rollins, a 16-year veteran of Goldman Sachs, sued the bank at federal court in Manhattan. He argues that he was unfairly fired for a relationship with Windhorst that more-senior managers had cultivated.
Goldman’s compliance department wouldn’t allow trades directly with Windhorst’s investment firm because of his previous legal problems, according to Rollins’ complaint. But Rollins said compliance staff let Windhorst make introductions. Rollins alleges that when a counterparty reneged on making almost US$85 million ($116.3 million) in payments, more senior executives panicked and scapegoated him.
In a court filing last week, his attorneys noted Falcon’s link to the Windhorst dealings and 1MDB, without elaborating. They argue that Goldman Sachs’s involvement with 1MDB and the bank’s later failure to immediately block Falcon from deals are part of a pattern.
“Recent revelations in Goldman’s 1MDB scandal show that the firm’s compliance failures, and attempts to cover them up, are not the isolated acts of a few bad apples, but pervasive,” the lawyers wrote in last week’s filing.
Goldman disputed Rollins’ account in August, saying he knew it had misgivings about dealing with the financier and that certain approvals would be needed before proceeding with the trade. In court, the bank has pushed to have the case moved into arbitration.
The transaction involved securities issued by RNTS Media, a digital advertising company, people familiar with the matter have said. Windhorst allegedly approached Rollins with an offer to hook him up with buyers and sellers. A spokesman for Windhorst acknowledged that the financier connected Falcon and Goldman, but denied responsibility for any fallout.
“Yes, he introduced both parties to each other in early 2016,” said Alistair Kellie, Windhorst’s spokesman. “What they did thereafter is their business.”