By Rozanna Latiff, Joseph Sipalan and Elizabeth Dilts Marshall
KUALA LUMPUR/NEW YORK (Reuters) - Goldman Sachs (NYSE:GS) will pay $3.9 billion to settle Malaysia's criminal probe over the U.S. investment bank's role in the multibillion-dollar 1MDB scandal, closing a key front in the multi-jurisdictional investigation that has hung over Goldman.
Goldman Sachs shares rose 0.68% in New York morning trading on the Malaysia news and signals the U.S. Department of Justice could be near closing a similar probe.
A spokesman for the Justice Department declined to comment.
"We view this as positive as GS is closer to removing a key overhang for investors, and this provides added comfort that the total settlement amount should be manageable," wrote Steven Chubak, an analyst at New York-based Wolfe Research.
"We still do not know how this will impact negotiations with the US regulators, but we expect some relief to be extended to Goldman given DOJ guidance to avoid 'piling on'," Chubak wrote.
The deal includes a $2.5 billion cash payout by Goldman and its guarantee to return at least $1.4 billion in proceeds from assets linked to sovereign wealth fund 1Malaysia Development Bhd (1MDB), the two sides said.
In return, Malaysia will drop all criminal charges against the bank, which had pleaded not guilty and consistently denied wrongdoing.
"We are pleased to have reached an agreement in principle with the Government of Malaysia to resolve outstanding charges and claims against Goldman Sachs," the bank said in a statement. "Today's settlement is an important step towards putting the 1MDB matter behind us."
Malaysian and U.S. authorities estimate $4.5 billion was stolen from 1MDB in an elaborate scheme that spanned the globe and implicated high-level officials in the fund, former Malaysian Prime Minister Najib Razak, Goldman staff and others.
Goldman had socked away around $3 billion in reserves for legal matters, more than covering the settlement with Malaysia.
It remained unclear whether the bank has put aside enough cash to cover a potential settlement with the Justice Department, which is reportedly looking at whether the bank violated the U.S. Foreign Corrupt Practices Act. The FCPA bars U.S. companies from paying foreign government officials for help in getting or keeping business.
In recent years, the Justice Department has pledged to take into account parallel settlements when calculating corporate penalties. A source told Reuters in December that Goldman was in talks with the U.S. government and a state regulator to possibly pay up to $2 billion to resolve the investigation.
"If past major foreign corrupt practice cases are a good indicator (which we think they are), the DOJ settlement could wipe out most of the great second quarter they just put up," wrote Evercore ISI analyst Glenn Schorr on Friday.
MALAYSIA VICTORY
The settlement is the biggest Malaysia has reached so far in its efforts to recover funds allegedly stolen from 1MDB, and is a big victory for the four-month old administration of Malaysian Prime Minister Muhyiddin Yassin.
"We are confident that we are securing more money from Goldman Sachs compared to previous attempts, which were far below expectations," Finance Minister Tengku Zafrul Aziz said in a statement.
U.S. prosecutors said the money was used to buy artwork, including paintings by Vincent Van Gogh and Claude Monet, luxury properties and to fund the "Wolf of Wall Street" movie.
Goldman helped the fund raise $6.5 billion in two bond offerings, earning itself $600 million in fees, according to the U.S. Justice Department.
Malaysian prosecutors filed charges in December 2018 against three of the bank's units alleging it misled investors.
Goldman has said that certain members of the former Malaysian government and 1MDB lied to it about how proceeds from the bond sales would be used.