Like other major corporations exposed for corrupt practices that appear to have been ignored, even sanctioned, by blind eyes at the top, Goldman Sachs has sought to write off the 1MDB scandal as a ‘lone operation‘ run by a rogue Southeast Asia boss, Tim Leissner, and his side-kick, Roger Ng.
The bank apologised for its shocking role in facilitating the world’s largest recorded kleptocracy, and in October 2020 accepted a Deferred Prosecution Agreement, brokered with the Eastern District of New York, whereby it coughed up a $2.9 billion fine in the course of accepting that any further criminal activity during the ensuing three year period would bring the prosecution back to bear against the bank.
In the eyes of many this was a mere slap on the wrist for the banking hierarchy, who had ignored multiple warnings and taken record bonuses out of the questionable 1MDB bond deals, whilst two relative juniors received sentences – just a couple of years in jail in the case of Tim Leissner, who had arranged a plea bargain, but a full ten years for the Malaysian, Roger Ng.
It is a scenario that has never rested well with those who followed the scandal closely, and a series of new criminal complaints and official investigations, this time from Latin America, now seem to imply that other ‘rogue’ Goldman-related personnel may be crawling out from the same dungheap of venture capitalism in emerging economies that is so actively engaged in by the bank.
If so, that Deferred Prosecution Agreement could in theory be reactivated, given the events referred to predate its expiry in October 2023.
Red Notice!
Last week, for example, on Wednesday 17th September, a local stir erupted with the issuance of a red notice alert and local arrest warrants against five persons by El Salvador, three of whom are American private equity investors from the so-called Peppertree Capital Management group, who are based in Ohio and were funded by Goldman Sachs during the period of the alleged fraud cited in the indictment.
The events apparently referred to in the indictment over an alleged “corporate boycott” are dated as having started in the very same month of October 2020 as the DPA over 1MDB (Peppertree sold out to TPG in May this year as the various accusations continued to mount).
The other two who find themselves hit with the same red notice, in which, according to local media, prosecutors cite “aggravated fraud, extortion, and illicit associations” against the Latin American telecommunications company Continental Towers and its affiliates, are Guatamalan citizens who are already incarcerated in Guatemala and awaiting extradition and trial having been charged of alleged connected offences in El Salvador.
The background to these indictments, which will doubtless be rebutted as having been orchestrated by powerful local players associated with Continental Towers, is a long-running battle for control of one of the region’s most potentially valuable developing future business assets, namely its biggest telecom tower constructor already worth in the region of a billion dollars, according to commissioned estimates.
Goldman Sachs had been funding an attempt to take over the company, while also taking a lucrative share of the asset itself, at a fraction of that price. The bank stands accused of conflict in that it had already bought into a minority share of Continental Towers and was supporting its forced sale to the would be takeover entity that the bank was simultaneously financing.
The two jailed Guatemalans are former CEOs of the self-same Continental Towers (a father and son Jorge Leonel and Jorge Alberto Gaitan) who have been accused of embezzlement from the company and also of colluding with the Americans and their bankers Goldman Sachs in the alleged takeover attempt.
Breach of Trust and Conflict of Interest?
The substance of the allegations against the bank has been outlined in a separate civil complaint lodged in Florida by the majority shareholder of the Continental Towers Group/ Terra Towers Corporation against a significantly smaller rival in the telecom tower business, Torrecom Partners, in September 2021.
The complaint by Continental Towers accuses Torrecom of conspiring to collude with minority shareholders, who had bought into their company as part of an allegedly planned “squeeze out merger” to take control of their business as the largest owner of an expanding network of telecommunication towers across Latin America
According to the court papers, these minority shareholders were Peppertree Capital Management Inc., controlled by the three indicted Americans, with a 32.2% interest (funded through a loan from Goldman Sachs) together with a Goldman Sachs subsidiary AMLQ Holdings (CAY)Ltd owning 13.35%. The two entities had bought into the company in October 2015, leaving the original owner of Continental Towers/ Terra Towers, one Jorge Hernandez, with a seemingly overall majority share of 54.4%.
However, the agreed new structure of the company enabled the incomers to obstruct and bully the company into a forced sale, alleges the complaint by the Continental/Terra Towers group. The minority shareholders controlled two of the four positions on the board. There was also to be appointed, as an ‘Observer’ to the board, who was a banker from Goldman Sachs, one Milton Milman.
This enabled the minority on the board, supposedly working with the Observer, to undermine the working of the company (in particular blocking a series of important contracts that as a consequence went to rivals such as Torrecom instead) in a manner that crippled the company and drove down its value, says the Terra Towers complaint.
The minority shareholders then proceeded in 2020 (the moment that a ‘lockdown’ period following their investment expired) to push for a sale of the company to Torrecom itself, for what Terra Towers complains was a fraction of the real value of the company (Terra gained a valuation of over $900m whereas Peppertree/Goldman advocated accepting a price from Torrecom of c $400m).
The complaint against Torrecom was that, by presenting this offer, their company “aided and abetted, Peppertree, Peppertree’s Board members, and Goldman, in breaching their fiduciary duties of care and loyalty to Terra”. This was in effect an allegation of criminal fraud against the majority members, as has now apparently been reflected in the red notices issued by El Salvador.
The reason being that it has emerged that the Torrecom bid was itself being financed by Goldman Sachs, in what would appear to be a rather blatant conflict of interest that was apparently not immediately declared when the sale was proposed. Moreover, the terms of that financing apparently allowed for Peppertree and Goldman Sachs to take a share in the proposed merged future entity, leaving Terra Towers out of the picture following the forced knockdown sale of their original company.
” In truth, this notice of proposed sale was a sham, as it did not disclose that Goldman, through one of its affiliates, would be providing the financing in an act of self-dealing and that both Peppertree and Goldman would be receiving an interest in Torrecom, to the exclusion of Terra, so as to effectuate the squeeze-out merger…… The above-described actions by the Peppertree Directors constitute a breach of their fiduciary duty of loyalty owed to the Company’s shareholders (such as Terra) and directors because they advanced their personal benefit to the detriment of the Company.” [Florida Complaint]
This civil complaint would appear to encapsulate the charges brought by El Salvador’s official prosecutors. According to the multiple current reports, the indicted Ohio based Americans, [Howard] Mandel and [Ryan] Lepene, are partners and executives at TPG Peppertree, and [John] Ranieri is a director… are accused of the corporate boycott for which they are now wanted by Interpol” [El Diario].
In particular, the “Sixth Organized Crime Court of San Salvador issued a red notice to INTERPOL for fraud, extortion, and illicit associations” [El Mundo].
Were any of these allegations to prove in the least bit substantiated after due process through the courts, the ramifications for Goldman Sachs could be extensive. Particularly, in terms of the apparent violations this would entail of the three year Deferred Prosecution Agreement the bank entered into with the DOJ over 1MDB in the very same month of October 2020 when the alleged hanky-panky got underway with the planned forced sale of Terra Towers.
On the other hand, in an apparent acknowledgement of its potentially conflicting interests, it must be said that Goldman ‘recused’ itself from the arbitration hearing.
Arbitration Success
Goldman Sachs and its collaborators from Peppertree can at least point to a far more satisfactory outcome within the plethora of cross jurisdictional legal actions sparked by this ugly business battle from the arbitration court in New York, namely the American Arbitration Association’s International Centre for Dispute Resolution.
This was where the minority shareholders of Continental Towers took Terra Holdings/ the majority shareholders (as per their shareholder agreement) back in February 2021 when Terra refused Torrecom’s knockdown sale offer.
By August of that year, the arbitration panel, chaired by one Marc Goldstein, had issued a very satisfactory sua sponte ‘First Partial Award’ ruling, prior to a full airing of the case, in which he commanded that the forced sale should first go ahead.
Mr Goldstein is himself on record, critics have pointed out, for warning that such arbitrary rulings can tend to make the disadvantaged side suspect partiality on the part of the tribunal. This particular ruling precluded Terra’s majority shareholder defence being heard, the industry site Arbitration Monitor has observed, thereby silencing the complaints of breach of trust, collusion and fraud in favour of the minority shareholder right to propose a sale.
Goldstein would also overrule the Guatemalan criminal court proceedings that had resulted in the company’s CEO Gaitan’s imprisonment for embezzlement and sacking from the company. In later awards the arbitration panel ordered that Continental Towers should re-instate the remanded CEO (despite being in prison) for the purposes of the proceedings brought by Goldman Sachs and Peppertree to force its own sale.
Comment from sites such as Arbitration Monitor portray such rulings as being arbitrary, interfering with foreign jurisdictional proceedings and out of the ordinary. However, Goldstein in his own site has implied that the website is not neutral and has been put up to such remarks.
More importantly, a district court in New York has upheld the right of the Arbitration panel’s Chairman to make this ‘sua sponte’ ruling, despite growing demands by Terra that the arbitrator be removed as they consider him not impartial in such decisions. They even accused Goldstein of aiding the plaintiffs in the case through his own public online postings allegedly providing veiled legal advice.
Amidst such rancour earlier this year, Goldstein and his panel issued a devastating ‘Fifth Final Award Ruling‘ fining the majority owner Jorge Hernandes $354 million for having refused to comply with the earlier rulings to sell the company and also for failing to re-instate the jailed CEO.
Goldstein and his panel had thereby finalised the process of the arbitration without the complaints of fraud having been aired.
Shocking Allegation Against Independent Arbitrator
That ruling continues to be ignored by Continental Towers which from early on in the arbitration process sought by numerous ways to have Marc Goldstein removed on grounds of alleged lack of impartiality and favouritism towards Goldman Sachs. Representations to the AAA and to the New York District Court have been rejected.
These overruled accusations were not merely fuelled by a sense of grievance, however, but also by the fact that Mr Goldstein was forced to amend his own oath of impartiality which he had made to the court at the start of the arbitration, following a series of events triggered by an anonymous and apparently un-substantiated “Wall Street Whistleblower Online” article published in March of 2022, later reported in Arbtration Monitor on April 11th.
Rather shockingly, the ‘Whistleblower’ article claimed that a Goldman Sachs insider had disclosed that an account had been opened at its New York headquarters for just one day on June 29th 2021, in the name of the self-same Mr Goldstein just three days after he was appointed to chair the dispute over Continental Towers. The controversial First Partial Award had been granted in August that year.
The report, which refers to claims of “bribery” alleges that the account had on the same day taken delivery of $250 million in one single transfer, which had then been immediately removed by a ‘cash instrument’, after which the account was apparently closed within 24 hours.
This extraordinary allegation is denied emphatically by Marc Goldstein in a very lengthy online rebuttal attached to his personal profile denouncing the “obscure” and anonymous websites that accused him of the receipt of this money saying “The article falsely reported that, according to whistleblower-provided information, I had apparently accepted a $250,000 bribe“.
The lengthy public statement does not specifically say that Mr Goldstein never had the account or received that sum, but states he “made a disclosure in the arbitration [that] reported to the Parties the falsity of the facts on which the accusation of corruption rested“.
However, the lawyers for Jorge Hernandez were apparently not satisfied with the above mentioned ‘disclosure’. They issued another request for the Chairman to be replaced or for him to provide an oath, according to the rules of the court as they cite it, that he had held no such account. They also demanded for Goldman Sachs to be subpoenaed to produce documents on the matter.
This was refused by AAA. Then, instead of a signed oath by the Chairman, the remaining two panel members had produced a so-called Procedural Order, whereby they vouched on behalf of Goldstein that the Chairman had “provided [to them] the following information, which the Tribunal shares here: Mr. Goldstein has never had an account with Goldman Sachs or with any company or person known to him to be an affiliate of Goldman Sachs“. Goldstein initialled their statement.
The panel moreover refused to subpoena Goldman Sachs on the grounds that this would be a case of the panel investigating itself. Instead, it appeared to simply dismiss allegations against itself.
This might have been the end of the matter, had not the lawyers for Continental Towers been commissioning their own research following the articles. In May they presented the arbitration panel with evidence of a ‘Grey List’ check on email traffic, which showed that Mr Goldstein had engaged in communications with the branch of Goldman Sachs in New York cited in the “whistleblower” report. The research company that conducted the legitimate traffic monitoring research claims to be over 95% accurate.
This conflicted with the original oath Goldstein had given to the court, the complainants alleged, in which he had vouched that he had no connections or affiliation to of the parties concerned, including Goldman Sachs.
Sarawak Report has further seen a related unpublished report that indicates the same Grey List research identified Goldstein as having not only communicated with the server allegedly used for accounts at the branch, but also an email address apparently belonging to one of the bank’s most senior global members who remains to this day in the top rank Management Committee.
A day later, on June 1st 2022, Marc Goldstein amended his original oath to clarify his previous denial of any connections to the bank to say “in light of Respondents’ submission of May 31, 2022, Mr. Goldstein reports that he has a second cousin who is also a friend and who retired as a partner of Goldman Sachs prior to the commencement of this case. This individual before his retirement from Goldman Sachs maintained his office at 200 West Street in New York. Mr. Goldstein and that individual exchanged emails of a social and family nature on that individual’s “gs.com” address. Before accepting appointment in this case, Mr. Goldstein confirmed with that individual that he had no knowledge of or connection to the subject matter of this case.”
The Chairman does not name the relative and further explains his position on his site. Sarawak Report will endeavour to achieve further clarification on the matter of the email address of the current senior figure at the bank, which has yet to be put to Mr Goldstein.
Impasse Or A Can Of Worms?
These allegations created a breakdown of the proceedings, given the refusal to appoint a panel trusted on all sides. The Arbitration panel in New York seems to have little time for the various criminal proceedings in Latin American jurisdictions, which it appears not to recognise, yet those proceedings have gained momentum despite the rulings of the arbitrators.
It seems likely the indicted US financiers will likewise seek to dismiss the rulings of the courts and red notices issued in the emerging economies where they have been investing as being an irrelevance or untrustworthy.
Yet, back in El Salvador a so-called “intervening party” – the equivalent of an official receiver – is expected to demand the judgement be frozen in New York pending the criminal proceedings (along with the daily fines being exacted on Continental Towers as an incentive to comply with the contested rulings by the besmirched Mac Goldstein).
As one awaits the outcome of these muscular cross-jurisdictional legal battles, where Goldman’s undeniable financial advantages seem pitched against possible local advantages that might favour the target company they had sought to acquire, it appears there may be more explosive revelations about to unravel.
Sarawak Report has sighted exclusive details of yet another related criminal complaint, in yet another jurisdiction, that has, according to our information, been taken up by the authorities in yet another Latin American country.
We are informed the development has been sparking mutual assistance requests across the globe for information relating to alleged illegal transactions (and further accusations of ‘bribery’) at banks connected to the Cayman Islands, the Isle of Man, Switzerland and Singapore.
Once again the allegations refer to alleged behaviour by Goldman Sachs connected persons, in the interests of Goldman Sachs in connection to this case – all during the self-same DPA period initiated in 2010.
It is understood the substantive details of the as yet unpublished complaint are known by Goldman Sachs and Milton Milman. So far, there is no indication that the bank has forwarded these concerns and allegations to its own regulatory authorities in New York as required, particularly under the terms of its DPA which expired last October (long after the reported alleged incidents occured).
Watch this space?