Goldman Sachs Group Inc. disclosed Thursday that it will pay a total of $5.1 billion as part of settlement agreements with government regulators for its part in the 1MDB scandal.
The Wall Street firm /zigman2/quotes/209237603/composite GS -3.76% has also agreed to enter into a three-year deferred prosecution agreement with the U.S. Department of Justice (DOJ) in which the charge against the firm — conspiracy to violate the Foreign Corrupt Practices Act of 1977 (FCPA) — will be filed and later dismissed, as long as Goldman abides by the terms of the agreement.
And Goldman is making current and past C-suite officers pay a total of roughly $100 million through compensation forfeitures and reductions, even though they weren’t involved in or had any knowledge of the Malaysian bond-offering scandal.
“The board [of directors] views the 1MDB matter as an institutional failure, inconsistent with the high expectations it has for the firm,” the board said in a statement.
The 1Malaysia Development Berhad (1MDB) scandal , which took place about a decade ago, involved the theft of billions of dollars from Malaysia’s state investment fund , which was allegedly laundered by associates of then-Malaysian Prime Minister Najib Razak.
Goldman’s board said that given the firm’s institutional failures, the former chief executive, the former chief operating officer, a former chief financial officer and two former vice chairmen will forfeit all, or most, of their outstanding long-term incentive plan awards that were granted in 2011. The total amount these five senior executives are responsible for is about $67 million.
Goldman’s board said it also believes it appropriate that current CEO (David Solomon), COO (John Waldron), CFO (Stephen Scherr) and CEO of Goldman Sachs International (Richard Gnodde) have their overall compensation for 2020 cut by a total of $31 million.
“[W]hile none of the past or current members of senior management were involved in or aware of the firm’s participation in any illicit activity at the time the firm arranged the bond transactions, the board has determined that it is appropriate in light of the findings of the government and regulatory investigations and the magnitude of the total 1MDB settlement that compensation for certain past and current members of senior management be impacted,” the board stated.
Separately, the board has also undertaken clawback actions totaling $76 million against former employees implicated in the criminal scheme: Tim Leissner, who has plead guilty to criminal charges; Ng Chong Hwa, who has been charged with the same crimes; and Andrea Vella, who has been banned by the U.S. Federal Reserve from participating in the banking industry.
That makes the total clawbacks, forfeitures and compensation reductions from former and current employees about $174 million.
Investors didn’t appear to be too concerned with Goldman’s disclosure, as the stock rose 1.2% to close at $205.40, while the SPDR Financial Select Sector exchange-traded fund /zigman2/quotes/209660484/composite XLF -2.12% advanced 2.0% and the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -1.05% gained 154 points, or 0.6%.
Meanwhile, Goldman’s settlement agreements are with a laundry list of governments and government agencies, including the DOJ, the U.S. Securities and Exchange Commission, the U.S. Federal Reserve, the New York State Department of Financial Services, the U.K. Financial Conduct Authority, the U.K. Prudential Regulation Authority, the Singapore Attorney General’s Chambers, the Singapore Commercial Affairs Department, the Monetary Authority of Singapore and the Hong Kong Securities Futures Commission.
In additions, Goldman’s subsidiary Goldman Saches (Malaysia) Sdn. Bhd. (GS Malaysia) has plead guilty to conspiracy to violate the FCPA.
The total settlement amount includes earlier settlement with the Government of Malaysia, in which Goldman paid $2.5 billion and provided a $1.4 billion asset recovery guarantee.
Goldman disclosed that it has been working with regulators to secure necessary exemptions and authorizations so that the settlements don’t affect its activities or services it provides to clients.
Keep in mind that the Fed has put growth restrictions on Wells Fargo & Co . /zigman2/quotes/203790192/composite WFC -3.35% in response to sales practice scandals, including not allowing the bank to add assets beyond the level it had at the end of 2017, until it improves governance and controls.
Year to date, Goldman’s stock has lost 10.7%, while Wells Fargo shares have shed 56.8% and the financial ETF has lost 18.2%.