Goldman Sachs Is Said to Be Under U.S. Scrutiny in Malaysian Inquiry

Federal prosecutors in Los Angeles drafted a criminal complaint against a former Goldman Sachs banker early this year for his alleged role in a vast Malaysian fraud, but the charges were never filed because of a Justice Department turf battle, according to two people familiar with the investigation.

Now, these people and two others say, the inquiry is solely in the hands of federal prosecutors in Brooklyn, who are investigating a target much bigger than a single Wall Street banker: Goldman Sachs itself.

The investigation centers on the disappearance of about $4 billion from a giant Malaysian government investment fund known formally as 1Malaysia Development Berhad, or 1MDB.

Prosecutors in the United States and elsewhere believe a group of people with close ties to former Malaysian Prime Minister Najib Razak stole from the fund to buy paintings, yachts, real estate and even investment stakes in movies like “The Wolf of Wall Street.”

Goldman provided an array of services to the fund, including helping it sell billions of dollars in bonds to investors. The bank earned about $600 million in fees for its work. Authorities are examining whether the firm played a role in the 1MDB fraud or should have done more to uncover the misappropriation of funds, the four people said.

Goldman has repeatedly played down its role in the 1MDB scandal, saying it was unaware of how money from the fund was being used. The firm has said it was cooperating with the investigation. “Goldman Sachs had no visibility into whether some of the funds we helped raise for 1MDB may have been subsequently diverted to other purposes,” said Michael DuVally, a Goldman spokesman.

The investigation is one of the marquee efforts by government authorities under President Donald Trump to pursue a top Wall Street firm. Since the financial crisis, Goldman’s prestige and profitability have made it an enticing target for prosecutors, and the 1MDB case has attracted the interest of law-enforcement authorities in multiple jurisdictions in the United States and in several other countries.

The result of the tug-of-war within the Justice Department is that the investigation is now more intensively focused on the potential culpability of Goldman Sachs, the four people said.

Officials in the U.S. attorney’s in the Central District of California, in Los Angeles, have spent nearly three years investigating the 1MDB case. In January, prosecutors from that office told their counterparts in the Eastern District of New York, in Brooklyn, that they planned to criminally charge the former Goldman Sachs investment banker, Tim Leissner, who had worked closely with the Malaysian fund, two of the people familiar with the investigation said.

The prosecutors in California hoped to use the charges against Leissner as leverage to negotiate a plea agreement with him and to secure his cooperation in potential cases against several other people, one of the people said. The charges that were drawn up against Leissner included an accusation he had provided misleading information to Goldman, something he was previously sanctioned for by securities regulators in Singapore.

The prosecutors in Brooklyn, who joined the investigation about two years ago, objected to filing charges against Leissner, which they said would hamper their investigation into Goldman’s possible role in the scandal, the people said. The worry was that accusing Leissner of tricking Goldman could undermine their case by casting the firm as a victim, one of the people said.

The unusual dispute between the U.S. attorneys’ offices eventually made its way to Justice Department headquarters in Washington, which also has been heavily involved in the investigation. Rod Rosenstein, the deputy attorney general, sided with the prosecutors in Brooklyn, handing them full responsibility for the 1MDB criminal investigation, the four people said. The prosecutors in Los Angeles were left to pursue civil cases involving the forfeiture of assets bought in the United States with money diverted from the investment fund.

The prosecutors in Brooklyn are now considering their own criminal charges against Leissner, which they hope will motivate him to cooperate and to provide more information about Goldman’s overall role and the roles played by others at the Wall Street firm, the people said.

Leissner recently hired Robert E. O’Neill, a former U.S. attorney in Florida, to negotiate with the Brooklyn prosecutors. O’Neill did not respond to requests for comment. Marc Harris, another criminal defense lawyer representing Leissner, declined to comment.

Until recently, the investigation was focused mainly on allegations that a Malaysian financier, Low Taek Jho, who is also known as Jho Low, misappropriated billions of dollars from the 1MDB fund. The prosecutors in Los Angeles have filed multiple civil lawsuits to recoup assets bought with some of that money.

When the prosecutors in Brooklyn started to investigate the matter in late 2016, a few months after the first civil forfeiture action was filed, their interest was on whether Goldman and other financial institutions had done enough to stop the fraud, the four people said. Since then, authorities in Brooklyn have focused primarily on Goldman’s activities.

Goldman has disclosed receiving subpoenas “from various governmental and regulatory bodies” as part of the 1MDB investigation. The bank has sought to distance itself from Leissner, who left Goldman in early 2016 after Goldman learned that he had provided Low with a reference in an unauthorized letter.

“Since we suspended Mr. Leissner, we have discovered certain activities he undertook that were deliberately hidden from the firm, which we have brought to the attention of the relevant authorities who continue to receive our full cooperation,” said DuVally, the Goldman spokesman.

In June, Lim Guan Eng, Malaysia’s new finance minister, said the government intended to seek restitution from Goldman for some of the missing money. Earlier this year, Malaysian voters ousted Razak, who was prime minister when the money was allegedly siphoned out of 1MDB. Authorities believe that some of the diverted money went into bank accounts and limited liability companies controlled by Low, Razak and the former prime minister’s family and friends.

Malaysian authorities have obtained an arrest warrant for Low, who is still being sought. In July, Malaysia arrested and charged Razak with corruption in connection with the scandal. He pleaded not guilty to three counts of criminal breach of trust and one count of corruption.

A representative for Low’s lawyers declined to comment.