Bad people do bad things, regardless of industry


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Bad people do bad things, regardless of the industry.

This is the main takeaway from a fresh round of criminal charges announced this morning against Goldman Sachs and two former employees. The charges stem from Goldman’s advisory work surrounding the 1Malaysia Development Berhad (1MDB as it is better known). Here are the things you need to know:

  • Goldman Sachs helped the 1MDB fund raise more than $6 billion by underwriting their bonds on at least three occasions. This work was led by Goldman banker Tim Leissner and earned the investment bank ~$600 million in fees.

  • The money that was raised by the fund was eventually siphoned off into the personal accounts of numerous individuals, including political leaders from Malaysia, Saudi Arabia and UAE. The accused mastermind of the scheme is Jho Low — a relatively young businessman who spent years blowing ungodly amounts of money trying to impress Hollywood elite.

  • The money that disappeared from the 1MDB fund was used to buy rare art, mega yachts, mansions, NYC penthouse apartments, and even finance the hit movie “The Wolf of Wall Street.” There are insane tales of Jho Low spending millions of dollars in a single evening at clubs across the world in the now popular book “Billion Dollar Whale.” (Highly recommend reading).

  • The 1MDB scandal has become a global crisis, with investigations ongoing in Australia, Hong Kong, Indonesia, Luxembourg, Seychelles, Singapore, Switzerland, UAE, United Kingdom, and the United States of America.

  • Earlier this year, the US Department of Justice charged two former Goldman Sachs bankers (Tim Leissner and Roger Ng) and Jho Low with various crimes. Tim Leissner pled guilty and admitted that more than $200 million from the 1MDB fund ended up being funneled to him and his family. Roger Ng was eventually arrested in Malaysia and Jho Low is currently a fugitive that is believed to be hiding in China. Additionally, a former DOJ employee has pled guilty to conspiring with Jho Low to hide critical information from US banks.

  • For the last 18 months, the DOJ has been recovering as much money as possible from those involved in the 1MDB scheme. They have seized high-end properties in Beverly Hills, LA, NYC and London. There has also been seizures of rare artwork, a private jet, a mega yacht, and royalties from “The Wolf of Wall Street.”

  • The criminal charges announced this morning are against three subsidiaries of Goldman Sachs, along with numerous individuals involved in the 1MDB scandal. They were filed under Malaysian securities law and prosecutors are seeking over $2.5 billion in fines.

The entire 1MDB debacle is almost too crazy to believe. Goldman Sachs, a reputable investment bank, helped a small group of relatively unknown people raise billions of dollars, before participating in various forms of money laundering, bribery, and outright fraud. The company took home around $600 million, while the lead banker (Goldman’s South East Asia chairman and Managing Director) ended up personally pocketing $200 million from 1MDB, without including his annual bonuses from Goldman Sachs.

If a regional office of the bank had merely helped these criminals raise money, but was unaware of their actions post-fundraise, this may not be such a big story. Unfortunately, employees of Goldman participated in different fraudulent activities, including accusations of bribery. The worst part? Goldman’s CEO at the time, Lloyd Blankfein, participated in a meeting with Jho Low that pertained to aspects of 1MDB. (Blankfein has not been accused of doing anything wrong but still not a good look for the investment bank).

So why does any of this matter to those interested in Bitcoin and crypto?

Bad people do bad things, regardless of the industry. Crypto detractors rely on accusations of money laundering and nefarious activity when explaining why digital assets are unsustainable. In their defense, there is no doubt that bad people have used cryptocurrencies in the past and it should be expected that bad people will use them in the future too. But that is true of all currencies, not just digital currencies.

In fact, the currency of choice for criminals, terrorists, drug dealers, and money launderers around the world is still the U.S. dollar. There is an estimated $2 trillion of the global reserve currency laundered each year and more than 70% of physical U.S. dollars have traces of cocaine on them. This doesn’t make everyone who uses U.S. dollars a bad person, nor does it mean that the U.S. dollar is unsustainable.

The most important test comes down to what currency law enforcement would rather a criminal use — U.S. dollars or Bitcoin? The answer is almost always Bitcoin. Why? The immutable ledger creates a relatively easy to follow trail of transactions that cement criminal activity forever. As law enforcement gets more sophisticated about how to read blockchain transactions, it wouldn’t surprise me to see them encouraging criminals to commit crimes with their hands on a keyboard.

The 1MDB scandal has turned into a global money laundering and bribery case that will continue to play out for years to come. It should be expected that more individuals will be implicated, more banks will have to answer tough questions, and hopefully additional protections will be put in place to prevent this sort of nefarious activity in the future.

Until then, remember the rallying cry of the crypto community: Long Bitcoin, Short the Bankers!

-Pomp


The “Off The Chain” podcast has been downloaded 300,000+ times in 160 countries. You can listen to the latest episode with Howard Lindzon of Social Leverage now: Click here for Off The Chain podcast


THE RUNDOWN:

Crypto Illegal Mining Beating Ransomware as Top Cyber Threat: Hijacking computers to illegally mine cryptocurrencies has overtaken ransomware as the biggest cyber threat in the Middle East, Turkey and Africa, according to Kaspersky Lab. Research by the Russian cyber-security firm shows crypto mining attacks have risen almost fourfold in the region, from 3.5 million in 2017 to 13 million this year. Such incidents are likely to continue given the increased use of digital currencies, Kaspersky said. Read more.

Blockchain Payments’ Mass Adoption Is 3-5 Years Away, Says BitPay CEO: Stephen Pair, CEO of BitPay says a "very big" component of Bitcoin's price represents investors' speculation on future usage and adoption of the technology. Read more.

This Binance Labs-Backed Crypto Startup Wants to Anonymize Everything: “We’ve been fucking up this mixnet idea for 39 years.” That’s how lead developer David Stainton introduced the mixing tech that powers Nym Technologies, a stealth anonymity startup that sports a roster of privacy activists and cryptography heavyweights from around the world. An open infrastructure based on a near-forgotten anonymity system named mix networks, Nym is now entering the proof-of-concept phase.The goal of the project? According to Harry Halpin – an advisor to Nym precursor Panoramix – the objective is “to anonymize the world.” Read more.

US Federal Government: Confusing Regulation For Crypto, Full Clearance For Blockchain: Individual US states seem to be in competition for the title of the most crypto-friendly in the Union – Ohio’s recent announcement of imminent crypto tax payments being the latest example. Meanwhile, federal authorities remain in disarray with regard to how to define, let alone consistently regulate digital assets. Read more.


Crypto-Friendly Money App Revolut Wins EU Banking License: Revolut, provider of a mobile finance app that offers crypto trading, has been granted a banking license from the European Central Bank. The new license will ultimately allow it to offer users an account to manage all their finances from a single place through its upcoming venture Revolut Bank. Read more.


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