Finance

Goldman CEO Solomon on ex-banker's role in 1MDB scandal: 'We apologize to the Malaysian people'

Key Points
  • "It's very clear that the people of Malaysia were defrauded by many individuals, including the highest members of the prior government," CEO David Solomon says at the start of a conference call to discuss fourth-quarter earnings.
  • "I know many of you will have additional questions, but as I'm sure you can understand, I can't say much more," Solomon adds in the apology.
David Solomon, Goldman Sachs
Patrick T. Fallon | Bloomberg | Getty Images

Goldman Sachs CEO David Solomon apologized to the Malaysian people for the role of one of his former bankers in the 1MDB scandal.

"It's very clear that the people of Malaysia were defrauded by many individuals, including the highest members of the prior government," Solomon said at the start of a conference call to discuss fourth-quarter earnings.

"Tim Leissner, who was a partner at our firm, by his own admission was one of those people," Solomon said. "For Leissner's role in that fraud, we apologize to the Malaysian people."

Solomon went on to reiterate several points that the bank has previously made: In its internal review, Goldman found that Leissner and Malaysian officials gave assurances that no intermediaries were involved — which ended up being false, as disgraced financier Low Taek Jho, known as Jho Low, has since been identified as a mastermind of the 1MDB fraud. The investment fund's outside auditors also provided clean opinions on the fund, Solomon said.

"This has been a difficult time, but I'm proud about how our firm has remained focused on our clients," Solomon said. "Please appreciate that I've tried to be as forthcoming as possible in my comments on 1MDB. I know many of you will have additional questions, but as I'm sure you can understand, I can't say much more."

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What happened to Malaysia's 1MDB money?

Since taking over from Lloyd Blankfein on Oct. 1, Solomon has been forced to address the burgeoning 1MDB scandal time and again: In November, he left company-wide voice messages for employees, saying he was "personally outraged" in the behavior of the accused Goldman bankers. Then in December, he defended the bank in a memo to employees, saying that there was "detailed due diligence" into the bond offerings at the heart of 1MDB.

Goldman Sachs bankers helped Malaysia raise money for the $6.5 billion fund, ostensibly to make infrastructure investments and boost development in the country. But instead of helping the nation and its 32 million citizens, at least $4.5 billion was plundered from the fund by a disgraced Malaysian financier and others.

Now, Goldman faces investigations around the world, including a Justice Department probe in the U.S. and criminal charges in Malaysia, over its role in setting up the fund. The firm underwrote bond transactions in 2012 and 2013 to launch the fund, and it collected higher-than-typical fees of $600 million for the deals.

Uncertainty from the investigations has weighed on Goldman's stock: Its shares dropped 34 percent last year, the worst performance among the six biggest banks. Goldman may need to spend as much as $5 billion to resolve the mess over 18 months, Wells Fargo analyst Mike Mayo said last month in a research note.

In the fourth quarter, Goldman's provisions for litigation and regulatory proceedings surged to $516 million from $9 million a year earlier, and most of that is tied to the 1MDB case, according to a person with direct knowledge of the matter.