Multinational investment bank Goldman Sachs has decided to reduce chief executive officer (CEO) David Solomon's annual compensation by $10 million due to the bank's involvement in the 1MDB scandal.
In a US Securities and Exchange filing, Goldman Sachs stated that it has reduced CEO Solomon's compensation package by $10 million or 36% from the $27.5 million in 2019 to $17.5 million for 2020 over the bank's role in the Malaysian investment fund 1MDB corruption scandal.
Chief financial officer (CFO) Stephen Scherr and chief operations officer (COO) John Waldron are also facing pay reductions.
Scherr's pay was cut from $22.5 million in 2019 to $15.5 million in 2020 while Waldron's pay was went down from $24.5 million to $18.5 million. The combined reduction from the three executives' total compensation for 2020 was $24 million.
Goldman Sach's also stated in the filing: "While none of Messrs. Solomon, Waldron or Scherr was involved in or aware of the firm's participation in any illicit activity at the time the firm arranged the 1MDB bond transactions, the Board views the 1MDB matter as an institutional failure, inconsistent with the high expectations it has for the firm."
1MDB scandal
According to the US Justice Department, Goldman Sachs arranged and underwrote for the 1Malaysia Development Berhad (1MDB) fund, from which $4.5 billion was stolen.
Malaysian financier Jho Low masterminded a plot to channel the money from the sovereign wealth fund to former Malaysian Prime Minister Najib Razak’s bank accounts. Razak, who denied any wrongdoing, was charged by the Malaysian government with numerous cases, including money laundering.
Meanwhile, Low formed a settlement deal with the US in October 2019 return $700 million in assets, including high-end real estate and a luxury hotel. If completed, the total amount recovered by the US government from the 1MDB fund will be over $1 billion.
The 1MDB scandal affected investors on a global scale. US Attorney Nicola Hanna said in a statement from the US Justice Department: “A staggering amount of money embezzled from 1MDB at the expense of the people of Malaysia was laundered through the purchase of big-ticket assets in the US and other nations.”
“Thanks to this settlement, one of the men allegedly at the center of this massive scheme will lose all access to hundreds of millions of dollars,” Hanna added. In 2018, the Malaysian police issued a warrant of arrest for Low.
Settlement agreement
Last July, Goldman Sachs agreed to a $3.9 billion settlement deal with Malaysia on claims regarding its role in the scandal. Under the Settlement agreement, the government of Malaysia will drop all criminal and regulatory cases against Goldman Sachs.
All proceedings will be dropped, including pending cases against subsidiaries of Goldman Sachs and certain current and former directors of the bank.
The deal involves Goldman Sachs paying the Malaysian government $2.5 billion and providing a guarantee that it also receives “at least $1.4 billion in proceeds from assets related to 1MDB seized by governmental authorities around the world”.
Malaysia’s Minister for Finance Sri Zafrul Aziz said: “This settlement represents assets that rightfully belong to the Malaysian people.”
In a statement, Goldman Sachs said: “Today’s settlement is an important step towards putting the 1MDB matter behind us and will help enable the Malaysian government to move forward with additional recovery efforts and to execute on its economic priorities.”
