Billion Dollar Whale Read online

  There was another reason Goldman didn’t need to worry. Tanjong, the seller of the power plants, had itself agreed to subscribe to a “significant” portion of the offering, according to the prospectus, a document Goldman bankers had drawn up to detail the bond for investors. The 1MDB fund had paid Tanjong a favorable price for its assets, and now the company itself was getting bonds with an attractive yield. In return, companies linked to Ananda Krishnan secretly made donations of $170 million to 1MDB’s charity arm. Soon after, in its financial accounts, the fund was forced to “impair”—or write off—$400 million of the value of the plants on its books, an admission it had overpaid. Lazard had been right to mistrust the high valuation of Tanjong’s assets, but Goldman missed what was going on.

  Goldman’s internal committees, set up to catch fraud, had failed in their job. Those arguing in favor of the deal cited the imprimatur of Malaysia’s government and the role of Prime Minister Najib in 1MDB. But there was another—unspoken—reason to make this happen. The profits would make this one of Goldman’s biggest paydays of the year.

  The stewards of Goldman, only a few years after the mortgage meltdown and promises of more upright behavior, were once again failing to uphold principles. The whole notion of “monetizing the state”—in countries without rule of law and sophisticated investors—risked costing taxpayers in poor places for the benefit of Wall Street. Goldman already had gotten entangled in a bad situation with the Libyan Investment Authority. Now the bank appeared to be overcharging a client in Malaysia whose willingness to pay above the odds was illogical.

  A series of red flags—from the involvement of Jho Low, to the unusual decision to obtain a guarantee from the fund of another country, to 1MDB’s willingness to overpay for the power plants—were all overlooked.

  In May, Tim Leissner was late for a dinner at a Chinese restaurant in Singapore’s ION Orchard, a futuristic shopping center that looked as if it had been designed by an understudy of Frank Gehry. As he entered, Leissner saw that the other guests sat around a circular banquet table. The group included 1MDB executives, Jho Low, Roger Ng (the Goldman banker), as well as Yak Yew Chee of BSI and compliance officers from the Swiss bank. Leissner was annoyed to be there and told participants he could not stay for long. This was not an official gathering, and Leissner realized he should not have come.

  Low had put the attendees together in an attempt to overcome an obstacle. The plan was for Goldman, on May 21, 2012, to deposit the proceeds from the $1.75 billion bond into the bank account of 1MDB’s energy subsidiary. Just a day later, $576 million of that amount was to move on to the BSI bank account of a British Virgin Islands company called Aabar Investments Ltd.

  But BSI’s own compliance department wanted to know why 1MDB was planning to transfer such a huge sum into their small bank. Leissner was there to smooth things over, but he seemed nervous. After some general talk about the bond, the German banker excused himself and left. BSI’s senior management, including Yak, nonetheless used his presence at the meeting, and the involvement of Goldman, to overcome the compliance department’s concerns. This was a senior representative of Wall Street’s best-known bank, after all.

  Compliance had good reason to be wary. Aabar Investments Ltd. was meant to look like Aabar Investments PJS, a subsidiary of IPIC. 1MDB would later claim, in its audited financial statements, that the $576 million transfer was part of a payment to compensate the Abu Dhabi fund for its guarantee of the bond.

  But this was an imitation firm, set up two months earlier, and the directors of the look-alike Aabar were Al Qubaisi and Al Husseiny, the chairman and chief executive of the real fund. It was as if the chief executive of General Electric, or another blue-chip American firm, had set up a fake company to look like General Electric to engage in off-the-books fraudulent behavior, while still enjoying the cover of a well-known name.

  It was a move straight out of Jho Low’s playbook. When he was just starting out, Low had set up look-alike companies to make it appear he had the backing of Middle Eastern sovereign wealth funds. This time, the stakes were much higher. It was a ruse, devised by Jho Low and Al Qubaisi, to take more money from 1MDB.

  As a further level of security, the pair had arranged for the money to flow via Switzerland-based Falcon Private Bank, which Aabar had bought from American insurance conglomerate AIG. Al Qubaisi had snapped it up when AIG was in trouble during the financial crisis and renamed it Falcon Bank, after the Gulf’s famous hunting bird. Switzerland was under pressure from the United States to clamp down on money laundering, but Al Qubaisi had control of his own Swiss bank. Consequently, Falcon’s bankers raised no red alerts, despite huge flows of money that would normally have tripped compliance alarms.

  Five months later, Goldman launched Project Maximus, buying another $1.75 billion in bonds to finance 1MDB’s acquisition of power plants from the Malaysian casino-and-plantations conglomerate Genting Group. Again, the fund paid a high price, and, like Tanjong, Genting made payments to a Najib-linked charity. This time, $790.3 million disappeared into the look-alike Aabar.

  David Ryan, president of Goldman’s Asia operations, argued to lower the fee on the second bond, given how easy it had been to sell the first round. But he was overruled by senior executives, including Gary Cohn. While Goldman was working on the deal, Ryan was effectively sidelined; the bank brought in a veteran banker, Mark Schwartz, a proponent of the 1MDB business, as chairman in Asia, a post senior to Ryan’s. Goldman earned a little less than the first deal, making $114 million—still an enormous windfall.

  For bringing in the business, Leissner was paid a salary and bonuses in 2012 of more than $10 million, making him one of the bank’s top-remunerated employees. For three years now, the banker had orbited around Low, hoping for a major payoff. He’d gone out of his way to help Low find bankers for valuations, and even visited him in a Swiss clinic. But Leissner knew better than to acknowledge Low’s secret role at the fund. What exactly the German banker knew about the fraud remains unclear. Did Leissner suspect Low was taking from the till? With such huge money at stake, perhaps Leissner convinced himself this situation was normal. Weren’t there always unsavory fixers in Asian business deals? Wasn’t Asia just a morass of corruption anyway?

  In October, Toby Watson, head of Goldman’s PFI desk in Asia, made partner. It was a good year also for Blankfein, Goldman’s CEO, who was paid $21 million, still well off his precrisis record of $68 million, in 2007, but a major payday nonetheless. Blankfein had developed other lines of business for Goldman, delivering a $7.5 billion profit that year. But the developments in Malaysia signified a big strategic win for the chief executive. Leissner didn’t want to shout from the rooftops about it, though, instead acting as if the bonds were a secret. When a senior Goldman colleague in the region circulated the profits internally, he testily asked for the information to be kept tight.

  As the colleague put it: “There was a real sense you didn’t want to draw attention to this.”

  Jho Low had executed his second major heist. Unlike the first phase in 2009, with PetroSaudi as his partner, the Malaysian had laid out this plan in minute detail. Three years earlier, Low had sought to do a big sovereign-wealth deal, put himself in the middle of the money flows, and perhaps earn a broker fee. Events moved quickly, and the conspirators saw their chance to take money.

  This time around, Low carefully laid the groundwork. Instead of an unknown Saudi company as a partner, he had roped in IPIC, one of the largest sovereign wealth funds on the planet. Al Qubaisi was an infinitely more powerful figure than Prince Turki, a layabout seventh son of the Saudi king. Back in 2009, Low’s excuses about the money flows varied, as if he were making them up on the fly. The Malaysian also took a huge risk, sending the cash to a Seychelles company he had set up. This time, Low and Al Qubaisi took much greater precautions, sending cash to a company that looked like an Abu Dhabi sovereign wealth fund and was controlled by Al Qubaisi.

  Known to only a handful of insiders at the
time, the money fanned out from the look-alike Aabar to a small set of beneficiaries connected to the deal. In total $1.4 billion was diverted. Here was the capital needed to make The Wolf of Wall Street, to pay off Malaysian voters, and to finance ever-more-exuberant parties and gambling.

  Al Qubaisi was rewarded handsomely for his role. Soon after 1MDB raised its second bond and funds flowed to the look-alike Aabar, a stream of money—eventually totaling more than $400 million—moved to an account controlled by Al Qubaisi’s company, Vasco Investment Services, at Edmond de Rothschild bank in Luxembourg. From here, Al Qubaisi would buy mansions in the United States, on both coasts, but he also was careful to ensure his patron, Sheikh Mansour, was taken care of.

  As the Goldman bonds came together, engineers from the shipbuilding firm Lürssen in Bremen, Germany, were putting the final touches to Topaz, Sheikh Mansour’s 482-foot yacht, which cost more than $500 million and was as large as a floating hotel, with two helicopter pads and eight decks. Al Qubaisi handled the financing for the Topaz, raising a large loan from Deutsche Bank that required payments of 6.4 million euros a month—a considerable outlay. One of the first payments Al Qubaisi made from Vasco, after receiving money from 1MDB, was a 6.4 million euro transfer to Deutsche Bank—an installment on the Topaz loan. He’d later pay a total of $166 million of the payments with funds from Vasco.

  In late April, as Goldman prepared 1MDB’s first bond issue, some one hundred thousand anticorruption protesters poured out into the streets of Kuala Lumpur. From the sky, the city center was awash in yellow—the color of the demonstrator’s T-shirts. For some time, anger among regular middle-class folk—teachers, office workers, lawyers, students—about everyday corruption had been rising.

  The demonstrators brandished antigraft signboards; some called for electoral reform. Others held up caricatures of Rosmah, who had become the symbol of Prime Minister Najib’s kleptocratic regime. How had she paid for her jewels? people wanted to know. As the swell of protesters tried to make their way to Independence Square, a grassy area at the heart of the city, riot police blocked their way. Late in the afternoon, as the marchers pushed forward, security forces met them with tear gas and water cannons.

  Suddenly, a police officer drove a vehicle into a group of demonstrators, injuring two people. The crowd reacted violently, dragging the officer out and turning the car upside down, before smashing in its windows. Scores of protesters were injured, some severely, over the next few hours. The battle lines had been drawn for elections, due the following year.

  The protesters knew nothing of what Low had carried out at 1MDB. But corruption in Malaysia already was eating away at the nation’s social fabric, from vote buying by UMNO, the ruling party, at election time to the regular backhanded payments by businesses to win government contracts. While middle-class Malaysians dealt with stagnating wages, Malaysia’s elite was accruing greater wealth, and it was fueling discontent.

  In 2006, a group of opposition politicians, lawyers, and anticorruption activists had started a movement called “Bersih”—the Malay word meant “clean”—seeking reforms to ensure fair elections. In 2007 and 2011 Bersih protesters, wearing trademark yellow T-shirts, had taken to the streets, clashing with police. But nothing had changed, and the Bersih organizers had called this protest as a last-ditch attempt to ensure clean elections, which were due to be held in mid-2013.

  They hoped this demonstration, the largest democratic protest in Malaysia’s history, would force the government to listen. Instead, it ended in rancor and division.

  Yet it was so much worse than the public knew. Low had taken graft to new levels, risking Malaysia’s financial stability. The 1MDB fund’s debt stood at a whopping $7 billion, and it had few assets to show for the huge borrowings. Most of the money had been diverted, and the fund had crashed to a $30 million net loss in its latest financial year. But most of these details were kept secret. It was even hard to get a copy of the fund’s financial report.

  Prime Minister Najib had envisioned 1MDB as a way to create jobs, and as a slush fund to build his popularity with all Malaysians. Instead, it had become a cesspit of graft. With his popularity sinking, Najib soon would double down on his bet on Low, backing the 1MDB fund’s push to take on even more debt in a bid to win the upcoming elections. His actions would send 1MDB even deeper into a death spiral.

  Low hoped the planned IPO of 1MDB’s power assets would stabilize the fund, and hide the growing thefts—a risky strategy, to say the least. But the Malaysian didn’t dwell much on the future. This was only government money, after all, and he still had the confidence of Najib, who had the power to write off debt.

  From another perspective, Low had replenished his stock of capital and now had the firepower to push ahead with constructing a Hollywood empire. He was on the cusp of entering the most reckless period of his young life.

  PART III

  EMPIRE

  Chapter 27

  Making Busta His Bitch

  Aboard the Serene, French Riviera, July 2012

  As the helicopter approached the landing pad, nestled in the bow of the 440-foot superyacht Serene, Jho Low was in high spirits. He was about to fly off to Monaco with an entourage of women for a shopping excursion to settle his nerves, before coming back to host his most significant party to date. He had reason to celebrate: The thirty-year-old’s new company, a Hong Kong outfit called Jynwel Capital, had just acquired a stake in EMI Music Publishing, whose hit-making writers included Kanye West, Beyoncé, Usher, Alicia Keys, and Pharrell Williams. On top of the EMI acquisition, Red Granite, the film company started by Low, Riza Aziz, and Joey McFarland, was set to begin filming work on The Wolf of Wall Street. Low, who had once been rejected for a personal bank account at Goldman in Switzerland, could now lay claim to being an entertainment mogul, and he wanted to make a splash.

  The Serene, with fifteen guest cabins and dozens of crew members, was a floating pleasure palace, whose centerpiece was a huge whirlpool bath and bar on the top deck. Features included a sauna, a partially covered swimming pool, a lounge with a grand piano, and a twisting marble staircase connecting the multiple levels of the boat. When anchored, decks on hydraulic arms opened out over the water, permitting guests to dine al fresco.

  Low required the most sumptuous backdrop for the night’s party, and Noah Tepperberg and Jason Strauss were on hand as always to oblige. The owners of the Marquee nightclub had taken care of the details. The $330 million yacht, the ninth largest in the world when it was completed in 2011, belonged to Russian billionaire Yuri Shefler, whose businesses included Stoli vodka. Tepperberg and Strauss also flew out models from the United States, the glamorous nightclub hosts whom Low demanded at every party. Danny Abeckaser, the club promoter and actor, brought along a group that included Leonardo DiCaprio, who was preparing to start filming The Wolf of Wall Street the following month. DiCaprio was known as a method actor, said to inhabit his characters’ minds even when off set. The actor’s hard-partying ways had been a tabloid fixture for years, so presumably it was not difficult for him to channel Jordan Belfort as he prepared for his next big role. And with Jho Low paying for the excesses, as he had done for years now, life and art began to fuse, even before the filming began.

  While Low and his entourage shopped in Monaco, Tepperberg and Strauss ensured everything was in place. Workers were putting the finishing touches to a stage on the boat for the night’s performances. The guest list included some of the world’s best-known pop stars—Kanye West, Rihanna, Chris Brown, Ludacris—as well as actors and members of Middle Eastern royal families.

  The $2.2 billion acquisition of EMI, finalized a month earlier, was led by Sony Music Holdings, the Estate of Michael Jackson, and U.S. private equity giant Blackstone Group. Low’s Jynwel Capital had invested alongside Mubadala, the Abu Dhabi fund run by Khaldoon Al Mubarak. His share, just over $100 million, was by far his most legitimate-looking deal to date. Low had set up Jynwel with his brother, Szen, and told financiers it
was his “family office,” investing his grandfather’s billions. His partners in the EMI deal had fallen for it.

  Low’s share, in truth, was financed by the 1MDB bonds that Goldman had sold for the fund. To hide the origin of the money, Low used an old trick, getting his associate Fat Eric to set up an offshore shell company called Blackstone Asia Real Estate Partners. This firm was designed to look like a bonafide subsidiary of the Blackstone Group but was controlled by Fat Eric, who worked for Low. On official documents, it would appear that Fat Eric owned scores of shell companies and assets, permitting Low to keep his involvement secret.

  By now Low had siphoned off more than $1 billion of the 1MDB money generated by the bonds sold by Goldman Sachs. With the help of IPIC managing director Khadem Al Qubaisi, Low had secured control of the cash, which was sitting in a shell company that looked like a subsidiary of IPIC. The money was supposedly to compensate IPIC for guaranteeing 1MDB’s bonds, but it was now Low’s to do with as he pleased. Looking for a way to fund his EMI stake, Low arranged for hundreds of millions of dollars to move to a Standard Chartered bank account of the look-alike Blackstone. To hide its traces, much of the money flowed through Amicorp-administered funds in Curaçao. From the money in the fake Blackstone account, Low financed Jynwel’s stake in EMI, as well as paying off Al Qubaisi, Jasmine Loo, the 1MDB legal counsel, and others.