DOJ - Continuing Analysis Of The Deceit And Duplicity Of 1MDB's Top Officials On Behalf of Jho Low and Najib

DOJ - Continuing Analysis Of The Deceit And Duplicity Of 1MDB's Top Officials On Behalf of Jho Low and Najib

At the weekend Sarawak Report detailed some of the examples given in the US Department of Justice’s court filing showing the deliberate conspiracy to commit fraud participated in by top 1MDB officials in order to help siphon billions from the fund.

All their actions were orchestrated by Najib’s appointed advisor Jho Low and were signed off by Najib himself.  These actions included providing different signed versions of the same formal agreements to different parties, primarily in order to get one set of bankers to release the stolen funds (on the grounds they were merely ‘repayments of loans’ or ‘refundable deposits’) and other sets of bankers to accept the stolen funds (as ‘payments’ or ‘loans’).

The 251 page document goes on to detail several more such instances of blatant fraud, forgery and deception, all sanctioned by today’s guest at the White House, Najib Razak, who together with his family was the major beneficiary of the missing billions.

Fraudulent Cover-Ups

One such further manoeuvre is described by the FBI investigators as they detail how the collaborators sought to inflate the value of the original PetroSaudi Joint Venture with 1MDB after most of the money had been stolen out of the venture from the very beginning.

LOW AND OTHERS TRIED TO COVER UP THE MISAPPROPRATION OF MORE THAN $1 BILLION FROM THE JOINT VENTURE

is the headline for this section, which explains how at least $1.03 billion of the $1.83 billion invested in the joint venture was stolen but 1MDB officials tried to alter the nature of its relationship with PetroSaudi several times (from a joint venture, to a loan, to a sell out in return for an investment in the company that was disguised as a ‘balanced portfolio’ but hidden off-shore).  In summary the DOL says:

“Paragraph 131:”…… LOW and 1MDB officials attempted to inflate the reported value of 1MDB’s investment in the Joint Venture several times…the co-conspirators tried to achieve this end by restructuring 1MDB’s investment in the Joint Venture several times, ultimately converting that interest into an opaque and illiquid asset, the value of which could not be easily verified by auditors and others. Thereafter, the co-conspirators orchestrated a fraudulent valuation of the assets underlying the investment to massively inflate their value and to create the false impression that 1MDB’s investment in the Joint Venture had generated a profit, when in fact it had been diminished significantly through misappropriation.

Ouch!  It means all the sceptisim of critics like Tony Pua, who questioned the real value of the Cayman Islands portfolio that claimed to be worth $2.2 billion, representing over a stunning $400 million in profits, has been born out. Exactly how Jho Low and 1MDB officials pulled off this fraudulent con to hide their thefts from the 1MDB auditors are detailed here:

133. In June 2012, 1MDB exchanged those Islamic debt notes for (i) a 49% stake in PetroSaudi Oil Services Limited (“PSOSL”), a subsidiary of PetroSaudi, and (ii) a call option to acquire the remaining equity stake in PSOSL. In its financial statements for the 2013 fiscal year, 1MDB represented that the stake it had acquired in PSOSL was of a “value equivalent to” the value of the Islamic debt notes, or approximately $2.22 billion.

134. At the time of this debt-equity swap, PSOSL’s primary assets consisted of two drillships, which had contracts with state-owned Petróleos de Venezuela, S.A. (“PDVSA”) to extract oil in Venezuela. At no point has 1MDB received payments or profits from these contracts, and in fact, PSOSL reported losses in both 2012 and 2013. PSOSL’s financial statements for the fiscal year ending December 31, 2012 disclose “adverse financial performance,” because, among other things, PDVSA failed to make timely payments to PSOSL under the contracts and because one of the ship’s contracts with PDVSA had expired in June 2012. PSOSL’s net assets were valued in those 2012 financial statements at $93,621,000, and PSOSL reported a net operating loss of $111,644,000. Upon information and belief, the value of PSOSL’s contracts with PDVSA, as well as the overall value of the company, has declined further in recent years as a result of developments in Venezuela.

c. Third Restructuring: PSOSL Equity to “Fund Units”
135. Not long after 1MDB acquired an interest in PSOSL in exchange for its supposed investment in the Joint Venture, 1MDB sought to restructure its holdings yet again. By restructuring its holdings, 1MDB further obscured the value of its holdings, which were not worth anywhere near their stated value or the amount that 1MDB had purportedly spent to acquire them. 1MDB officials accomplished this restructuring with assistance from bankers at BSI Bank in Singapore, with whom LOW had a close relationship, and employees of Bridge Partners Investment Management Ltd. (“Bridge Partners”), an investment advisory firm with fund managers based in Hong Kong.

136. LOW was himself also involved in the restructuring process. For example, in a June 13, 2012 email exchange, two BSI bankers discussed the restructuring deal and an upcoming meeting with 1MDB on the matter at the Mandarin Oriental in Singapore. The exchange closed, in relevant part, with the phrase, “1MDB all aligned to JL’s plan,” using Jho LOW’s initials.

137. The restructuring involved a series of complicated and commercially unnecessary transactions, resulting in the conversion of 1MDB’s stake in PSOSL into securities in a purportedly legitimate investment fund. To accomplish this end, 1MDB “sold” its equity stake in PSOSL to an affiliate of Bridge Partners in exchange for promissory notes, and then 1MDB used those promissory notes to subscribe to “fund units” in the Bridge Global Absolute Return Fund SPC (“Bridge Global Fund” or “Bridge Global”), a Cayman-registered corporate vehicle managed by Bridge Partners. The Bridge Global Fund held only one asset, however – the very same equity stake in PSOSL that 1MDB had conveyed to Bridge Partners. The transactions had no economic substance, amounting to a round trip of various securities and commercial paper that were designed to, and did, have a specific and false accounting effect—namely, the fraudulent inflation of the value of 1MDB’s assets. 1MDB created a new wholly-owned subsidiary called Brazen Sky Limited (“Brazen Sky”) for the express purpose of holding these fund units.

138. Notwithstanding this restructuring, the value of Brazen Sky’s holdings remained linked to the value of the drillships and drilling contracts held by PSOSL, because the fund units were solely backed by shares in PSOSL. But the restructuring obscured this fact from third parties, including 1MDB’s auditors, because it interposed several additional entities between 1MDB and its holdings in PSOSL, including an ostensibly independent investment fund. Given the opaque nature of the Bridge Global Fund, it was difficult for third parties to independently verify the nature and value of the assets underlying the fund units. In this way, certain 1MDB officials and others were able to conceal the true value of 1MDB’s original investment in the Joint Venture, which had been significantly diminished by the diversion of more than $1 billion to Good Star.

Remember that Najib’s cheerleaders are fond of repeating that the DOJ have “no proof” to substantiate their accusations. They clearly have chosen not to read this detective novel of a court filing available free online!

Lying Bankers

The excuse of many of the banks caught up in 1MDB is that they were lied to by Jho Low, PetroSaudi, Aabar and 1MDB officials.  However, as the DOJ makes clear, a number of bankers colluded also in these lies, which has been backed up by trials in Singapore that resulted in prison sentences for a number of them.

For example, this is how 1MDB officials and their cronies at BSI (specifically Yak Yew Chee and Yeo Jiawei) helped mislead 1MDB’s accountants by providing false valuations and claiming there was cash in the Brazen Sky account belonging to 1MDB:

145. At the December 12, 2012 meeting with KPMG, which was held at BSI’s offices in Singapore, 1MDB and BSI officials misled KPMG about the nature of the Bridge Global assets held by Brazen Sky. Minutes from the meeting show that 1MDB OFFICER 4 [Terence Geh the Executive Director of Finance] and the BSI bankers present at the meeting (SINGAPORE BANKER 2 and SINGAPORE BANKER 3) withheld from KPMG the fact that the assets underlying the Bridge Global investment consisted of two drillships and instead conveyed the impression that the fund units were backed by cash.

146. 1MDB’s audited financial statements for the fiscal year ending March 31, 2012, were signed off by KPMG on or about December 27, 2012. In the section of those financial statements devoted to “subsequent events,” 1MDB represented that it had invested $2.318 billion in the Bridge Global Fund. This disclosure was the direct result of the fraudulent valuation discussed above.

147. In August 2013, 1MDB officials and others again attempted to secure a market-based valuation of the PSOSL assets to bolster BSI’s earlier valuation of the Bridge Global fund units at more than $2 billion. SINGAPORE BANKER 2 coordinated the procurement of that valuation, with the specific aim of securing a valuation of the assets at $2.4 billion. A Singapore-based equity research company, NRA Capital Pte. (“NRA Capital”), agreed to value the PSOSL assets at $2.4 billion on the basis of PSOSL’s 2012 financial statements showing less than $100 million in net assets and a net operating loss of more than $100 million. In exchange for producing, on an urgent basis, a valuation report that met the target value, NRA Capital was paid $300,000 by an entity called Affinity Equity International Partners Limited (“Affinity Equity”). As described in Paragraph 396 below, Affinity Equity was a shell entity nominally affiliated with TAN, which was used to funnel misappropriated 1MDB funds to LOW. The NRA Capital research analyst responsible for the valuation report was also personally bribed to produce the report on an urgent basis, with the understanding that the resulting valuation would meet the client’s target value.

Redeeming The Money!

The next piece of deception in which this team of lying officials all colluded was the nonsense farce of 2014 when Najib Razak and his Finance Ministry team and 1MDB repeatedly told the world that they were ‘redeeming’ the money ‘invested in PetroSaudi’ and then the ‘Cayman Island Portfolio’ back into 1MDB’s bank accounts.

No one sensible believed them at the time and quite rightly so.  The DOJ has lifted the veil over what they were up to and sure enough the money they had flowing through various bank accounts that they claimed were being returned from the Bridge Global Investment Fund based in the Caymans was in fact money 1MDB had just borrowed from Deutsche Bank, based on the lie that the Bridge Global money was sitting as collateral in the bank!

150. In 2014, officials at 1MDB and others engaged in further fraudulent conduct…In late 2014, 1MDB claimed publicly and in its financial statements that Brazen Sky had “redeemed” more than $1.2 billion-worth of Bridge Global fund units in cash. ..this “redeemed” cash did not originate from the Bridge Global Fund, however, but rather from money that 1MDB borrowed from Deutsche Bank in 2014. Deutsche Bank loan proceeds were passed through the Bridge Global and Brazen Sky Accounts multiple times to give the appearance that Brazen Sky was redeeming fund units. In fact, Brazen Sky’s investments in the Bridge Global Fund were not capable of producing $1.2 billion in cash.

In other words, a perfect example of what is known in the business as ’round-tripping’ or more colloquially as cooking the books.  One wonders why Najib still bothers to declare the far milder Auditor General’s version of the same events an ‘Official Secret’ when the DOJ’s damning evidence is out there to back it up?

Low Forged Fake Documents

Dear Readers – we are still only one of the way through this DOJ page turner of a crime thriller and the word ‘fraud/fraudulent’ has come up two dozen times and the word ‘false’ a dozen times, as in:

Low Made False Representations and Provided False Documentation to Conceal His Role in the Misappropriation

In this section the DOJ details how Low tried to lie and pretend on the one hand he didn’t own Good Star and then to another bank the following month that he did in order to be able to move the money.  And there is plenty in the DOJ report to show exactly how Low was using this stolen money – for example the millions he splashed gambling in Las Vegas:

293. The Venetian Casino used customer account number XXX4296 to identify LOW. On or about July 10, 2012, $11,000,000 was deposited into LOW’s account at theVenetian Casino, and records show that LOW gambled there for approximately seven days beginning on or about that date.

294. On or about July 11, 2012, an additional wire of $2,000,000 was sent from the Alsen Chance Account to Las Vegas Sands LLC. The payment details on that wire read: “TAN KIM LOONG PLAYER NO [XXX]8710.” The Venetian Casino Resort used customer account number XXX8710 to identify TAN.

295. On or about July 15, 2012, LOW withdrew an aggregate cash amount of $1,150,090 at the Venetian Casino: $500,000 as a withdrawal of deposit, and $650,090 as redemption of casino chips and other gaming instruments. Several individuals gambled with LOW on this occasion, using his account. These individuals included AZIZ; Red Granite Pictures co-founder McFarland; DiCaprio; and the 1MDB-SRC OFFICER, who was the former Chief Investment Officer of 1MDB and was at the time the CEO of another Ministry of Finance vehicle called SRC International (“1MDB-SRC OFFICER”).12

It has already been detailed many times how these same conspirators colluded on a number of ridiculous letters to banks, accountants and auction houses to pretend that the monies they had stolen were gifts either from Saudi Royals or each other (Hussein to Riza, Tan to Low, Low’s Dad to Low) or just no strings-attached investments from SRC to companies controlled by Low (Nik Faisal Arif Kamil of SRC signed off such monies to BSI Bank for companies like the bogus Affinity Capital and the bogus Pacific Harbour off-shore shell companies, bothowned by Tan/Low).

All of the above involved forgeries, lies and nonsense now lie revealed for all to read about and under the relentless spotlight of the DOJ investigation.

These conspirators didn’t just plot together. The bent officials from 1MDB partied and gambled the money away together with Low and Najib’s son, whilst ordering diamonds for The Boss.

So, when their successors pompously release 1MDB statements and press releases condemning critics and telling the world that their ‘restructuring programmes’ are underway and that there is no evidence of wrong doing, the rest of us should remember it is all still just lies and the lot of them will meet their eventual judgement time in a US court of law.

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