According to the news report by Bloomberg, Goldman Sachs Group Inc. is facing the biggest hit to its reputation in the last decade. And this has impacted the company’s share prices too.
Early this month, prosecutors had implicated three of Goldman Sachs’ senior bankers in a multi-billion dollar fraud case in Malaysia. And since then, investors have been given an almost daily feed by the media about Goldman Sachs’ part in this scandal.
The entire case reached a peak on Monday, when the Malaysian Finance Minister demanded that Goldman give a full refund. This led to the financial giant see its shares experience their biggest drop in the last 7 years.
Goldman Sachs’ share prices dropped by 7.5% yesterday, which is the biggest one-day plunge the company has experienced since November of 2011. The bank’s stock plunge pulled down the S&P 500 also, and the index fell by 2% yesterday.
The bank was also the worst performer on the Dow Jones Industrial Average, which is really bad, considering that all but 4 of the companies on the Average declined.
On November 1, three senior executives from Goldman were publically incriminated by the US Department of Justice in a criminal enterprise that spanned multiple years and included bribing officials not just in Malaysia but also other countries. They were also charged with having laundered hundreds of millions of dollars.
Goldman Sachs stated that it was cooperating with the authorities and could possibly be looking at paying hefty fines.
In 2010, Goldman Sachs had taken a massive hit to its reputation when it became the target of criticism at congressional hearings due to the part it played in the global credit crisis.
At that time, the company had been accused of defrauding investors by not revealing that a hedge fund that had been betting against a derivative connected to mortgages had been instrumental in creating the product they bought. Goldman admitted that it had omitted this key detail from its marketing materials and ended the issue by settling.
The bank spent the time since then painstakingly rebuilding its reputation. And now this scandal has once again hit the company’s reputation badly.
The investigation in Malaysia has focused on its state-run investment company called 1Malaysia Development Bhd. as well as the $6.5 billion the company had raised back in 2012-2013. Goldman was the bank that handled the deals and charged 1MDB $600 million as fees for their work.
Goldman’s ex-Chairman for Southeast Asia, Tim Leissner admitted in a plea bargain that he had bribed officials in 1MDB so that their bank would get the bond deals. Leissner also admitted that he and others had arranged the fundraising in the form of debt offerings so that Goldman would make more money in higher fees.
Additionally, he stated that over $200 million had been paid to him personally by 1MDB, which were paid into accounts held by him and his relative. According to the prosecutors, the implicated executives admitted that they have gone around the bank’s internal compliance systems to avoid detection.
The Malaysian Finance Minister, Mr. Lim Guan Eng stated that their country would be looking for a complete refund of all the fees paid out to Goldman for this deal. However, he did not specify how they plan to get that money back from the firms implicated in this scandal.
Malaysia’s Prime Minister Mahathir Mohamed stated that he was aiming to recover $4.5 billion in total. That is the exact amount that the US Department of Justice said went missing from the 1MDB fund.