U.S. authorities are investigating the $2.2 billion purchase of a U.S. energy company by a Middle Eastern government investment fund that was arranged by Goldman Sachs Group Inc. and netted one investor a $300 million windfall in less than a week, according to a government lawsuit and people familiar with the investigation.
Investigators allege that the investor was an important player in the scandal involving Malaysian government-investment fund 1Malaysia Development Bhd., or 1MDB. Goldman earned hundreds of millions in fees arranging $6.5 billion worth of bond deals for 1MDB.
Investigators in the U.S. and other countries have said several billion dollars was misappropriated from 1MDB.
The U.S. Justice Department, in an asset seizure lawsuit dated Wednesday, provided detailed allegations that in 2013 and 2014 funds allegedly stolen from 1MDB were funneled via a series of bank accounts and shell companies to partly finance the purchase of Coastal Energy, a Houston firm controlled at the time by legendary Texas oilman Oscar Wyatt Jr. The lawsuit seeks to seize proceeds from the Coastal deal, but not Coastal assets.
The Coastal deal involved many people believed by investigators to be involved in the alleged schemes to defraud 1MDB: The buyer was a joint venture between a company owned by Abu Dhabi sovereign-wealth fund International Petroleum Investment Co., or IPIC, and a shell company controlled by Jho Low, a Malaysian financier, according to the Justice Department asset seizure lawsuit. Goldman advised the IPIC unit that paid nearly all of the purchase price.
Last summer, the Justice Department filed a $1 billion asset seizure lawsuit against properties controlled by senior executives of IPIC and against Mr. Low. In a complaint dated Wednesday, the Justice Department expanded the lawsuit to include property in London allegedly purchased with money it claims was taken from 1MDB and fraudulently washed by Mr. Low and his family through the purchase of Coastal Energy.
Mr. Low, who was being informally advised by Goldman at the time, first approached Coastal in 2012 about a possible acquisition, people familiar with the matter said. Skeptical that Mr. Low could come up with the cash necessary, Coastal executives told him to find a bigger partner, a person familiar with the matter said. He returned with IPIC's Spanish energy unit, Compañía Española de Petróleos SAU, or Cepsa, the people said.
Mr. Low invested $50 million in the deal, with Cespa funding the remainder of the $2.2 billion purchase, according to the Justice Department lawsuit and statements announcing the acquisition.
One week later, Cepsa transferred $350 million to Mr. Low's shell company, according to the lawsuit. "The commercial basis for this nearly immediate 600% return on investment is not immediately apparent," the Justice Department lawsuit said. IPIC and Cepsa didn't respond to requests for comment.
Before an agreement with the U.S. energy company could be reached, Goldman's compliance department told its bankers to stop working with Mr. Low or his entity on the deal, citing concern over Mr. Low's wealth, people familiar with the matter said. Goldman recently had turned down a request by Mr. Low to open a private bank account for the same reason, according to the people.
Mr. Low remained a participant, though, through a shell company called Strategic Resources (Global) Ltd, according to deal documents. Goldman advised Cepsa, which was paying nearly all of the deal's purchase price, according to the complaint, merger documents and statements announcing the deal. PricewaterhouseCoopers was a financial adviser to both Cepsa and SRG. PricewaterhouseCoopers declined to comment.
Goldman said in a statement that neither Mr. Low nor any firm controlled by him was a Goldman client in the Coastal deal. "Prior to reading the government filing, Goldman was not aware of, and had no involvement in, any transaction in which SRG sold its stake in a joint venture back to Cepsa," the firm said.
Goldman had roughly $600 million in revenue from 1MBD in 2012 and 2013 for selling $6.5 billion in bonds. Much of the money raised by Goldman was taken out of 1MDB by Mr. Low and IPIC executives and used to purchase mansions, pay gambling debt and fund a Hollywood movie company, the Justice Department lawsuits claim. Goldman has also said it has no knowledge of any fraud at 1MDB.
A January 2014 press release issued by Coastal Energy, Cepsa and SRG announcing the deal's completion referred to Strategic Resources as a firm controlled by Mr. Low's father, Larry Low. When executives and advisers met for dinner to mark the deal's close, Szen Low, Mr. Low's brother, joined the celebration, one person said.
Jho Low, whose whereabouts are unclear, has denied wrongdoing. 1MDB has consistently denied wrongdoing and said it would cooperate with the investigations. The Justice Department lawsuit cited Mr. Low as saying Cepsa bought out his stake because it "wanted full control and ownership of the business."
The Justice Department is interested in the Coastal deal because it says the $50 million Mr. Low invested originally came from 1MDB. The Justice Department on Tuesday moved to seize London property that it says was bought with some of the $350 million proceeds of the Coastal deal. The Justice Department has questioned people involved in the deal in recent months, according to people familiar with the investigation.
Coastal was represented in the deal by Citigroup Inc., which advised its clients to tread carefully, one person said. The $2.2 billion purchase price for Coastal Energy was at a 28% premium to the company's stock price, earning Mr. Wyatt more than $500 million for his quarter stake in the company. An attorney for Mr. Wyatt didn't return calls seeking comment. A Citi spokeswoman had no immediate comment.
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(END) Dow Jones Newswires
June 12, 2017 20:02 ET (00:02 GMT)