Further deepening Goldman Sachs’ embroilment in the 1MDB controversy, the lawsuit relates to advice given by Goldman Sachs to Malaysian bank EON Capital when it was the subject of a 2009 takeover bid from Hong Leong Bank (HLB). After originally advising EON that the HLB bid for the bank wasn’t high enough, the lawsuit alleges that Goldman Sachs later ‘reversed course’ and changed its advice to the takeover target. The result, the lawsuit argues, was advice that EON should accept a slightly higher but still ‘hundreds of millions of dollars below fair value’ $1.24bn offer for the bank. ‘No un-conflicted investment bank could have found the second HLB offer fair or recommended that the board accept it,’ argues the lawsuit brought by Primus Pacific Partners, a Hong Kong-based private equity house that at the time held a 20 per cent stake in EON.

Conflict of interest

At issue is the relationship that both Goldman Sachs and buyer HLB shared with Malaysian Prime Minister Najib Rizak. Prime Minister Najib Razak’s brother Nazim Razak was employed as a director at HLB, while another brother Nazir Razak was chairman of CIMB Group, which advised HLB on its bid for EON. Meanwhile, Goldman Sachs’ ties to the Malaysian prime minister come in the form of 1MDB, the controversial economic development fund established by Prime Minister Najib for which Goldman Sachs was a lead advisor. Primus Pacific Partners allege that Goldman Sachs’ relationship with the prime minister represented an undisclosed conflict of interest, and that reversing its advice to EON may have been advantageous to Goldman Sachs in its role as advisor to 1MDB.

Pressure mounts on Goldman Sachs

Goldman Sachs had indicated that it plans to rigorously defend the New York lawsuit, pointing out that Primus Pacific Partners had already failed in its earlier attempts to block the shareholder-approved takeover from taking place. The investment bank has been under the microscope ever since reports began to surface that funds were being misappropriated from 1MDB. Though Goldman Sachs has not been accused of wrongdoing, the US DoJ is investigating whether the investment bank may have violated the Bank Secrecy Act by failing to alert authorities to suspicious bond issues that it carried out for the fund.

Sources: Financial Times; CNBC; Wall Street Journal