Goldman Sachs gets sued as 1MDB fallout widens

The 1MDB maelstrom continues with global investment banker Goldman Sachs being sued over alleged fraudulent misrepresentations that involve links to Malaysian Prime Minister Najib Razak, whose step-son is accused of using pilfered state cash to make movies.

Primus Pacific Partners, a private equity firm and the largest shareholder of Malaysian bank EON Capital, is suing Goldman for US$510 million for fraud and breach of fiduciary duty, according to a statement released Tuesday as reported by business television channel CNBC.

The suit claims Goldman concealed a conflict of interest with Najib when it was advising EON, which had owned EON Bank when it was subject of a takeover by another Malaysian bank, Hong Leong Bank.

At that time, Goldman Sachs was an adviser to 1MDB, a development fund established by the prime minister, the lawsuit says.

But Goldman was also financial adviser to EON, which was weighing a takeover bid by Hong Leong Bank — a bank that allegedly has close ties to brothers of the prime minister.

Primus claims Goldman first called the Hong Leong bid “unfair,” only to reverse course weeks later.

In the suit, the final price of the merger was “hundreds of millions of dollars below fair value” — but the reversal may have furthered Goldman’s role as adviser of 1MDB. The original complaint can be read here.

The suit comes as 1MDB faces international regulatory scrutinyover accusations that its funds were misappropriated by Najib. U.S. prosecutors sued last week to seize more than $1 billion in assets they said were tied to a scheme to launder money stolen from the fund.

Goldman Sachs declined to comment when contacted by CNBC.

Earlier this week, the New York Times reported the Federal Reserve was preparing an enforcement action against Goldman Sachs related to confidential government information leaked from the Fed to one of its bankers.

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