Was 1MDB ‘defrauded’?

The Edge attempts to portray the 1MDB fiasco as a scheme to ‘steal money’ from the Malaysian public

KUALA LUMPUR: In what it claims “is possibly the last (report) on this subject,” the Edge Financial Daily sought to summarise the financial fiasco surrounding 1Malaysia Development Berhad’s (1MDB) failed joint venture with PetroSaudi International.

A 4-page report published today seeks to expose “how a group of individuals (had) schemed a multi-billion ringgit fraud against the people of Malaysia.”

According to the report, the joint venture agreement between 1MDB and PetroSaudi International which was inked on September 28, 2009, saw 1MDB contributing US$1 billion cash for a 40% stake in the joint venture vehicle known as 1MDB PetroSaudi Ltd (JV Co).

PetroSaudi Holdings Cayman, for its part, agreed to inject assets in Turkmenistan and Argentina which its valuers, Edward Morse, valued at US$3.5 billion and US$108 million, respectively.

However, the Edge claims that the Turkmenistan assets were not owned by PetroSaudi Holdings but by another entity, Buried Hill Energy (Cyprus) Co Limited. 1MDB’s management, however, failed to carry out its own independent verification and valuation, resulting in its joint venture partner purportedly committing fraud by selling assets to the JV Co which it did not own.

The Edge also points its finger at what it claims amounted to the “creation of a fake US$700 million loan from PetroSaudi Holdings to the JV Co.” It claims that the 1MDB board was not aware of this purported loan prior to the signing of the JVA and did not authorise its repayment. Despite this, 1MDB proceeded to make a purported ‘repayment’ to Good Star Limited, a company said to be controlled by Jho Low.

Justifying their allegations that the loan was “fake” the Edge claimed, among other things, that there was no corresponding cash in the JV Co or in any of its subsidiaries on or after the date of the loan agreement, September 25, 2009, to justify its existence. It is also alleged that the US$700 million repayment was a breach of the terms for which Bank Negara Malaysia approved the payment by 1MDB of US$1 billion to the JV Co.

Turning its attention to Good Star, the Edge claims that Patrick Mahoney, CEO of the JV Co, had lied when he told 1MDB’s lawyers that Good Star was part of the PetroSaudi group.

“Good Star executed an agreement on Sept 30, 2009 to pay PetroSaudi Holdings’ executive and shareholder Tarek Obaid US$85 million as broker fee,” the report reads. “If Good Star was part of PetroSaudi why was there a need to do this,” it asks.

The report alleges further that in July and September 2010, Jho Low had requested that Mahoney remit to Good Star further sums of money which were to come from Murabaha notes that 1MDB intended to subscribe to.

“Between June 2011 and September 2013, Good Star remitted a total of US$529 million in several transfers to a bank account at the Swiss private bank BSI in Singapore that belonged to Abu Dhabi-Kuwait-Malaysia Investment Corp (ADKMIC),” the report reads. “Jho Low has been identified as the beneficial owner of that bank account” and “declared himself as a shareholder of ADKMIC when he was involved in the acquisition of the then Bursa Malaysia-listed UBG Bhd in 2010.”

In analysing “who got what” from the US$1.83 billion that 1MDB invested in the joint venture between 2009 and 2011, the Edge claims as follows –

· Good Star received in total about US$970 million, and that US$529 million out of this was paid into the bank account of ADKMIC in Singapore.

· Another company linked to Jho Low, Javace Sdn Bhd, was believed to have received US$260 million purportedly via Tarek Obaid.

· Tarek himself allegedly received another US$240 million from 1MDB which the Edge claims he used to pay Prince Turki (US$77 million), Patrick Mahoney (US$33 million) and Nawaf Obaid (US$1 million).

· Various PetroSaudi companies were said to have received around US$330 million.

The Edge then claims that a “hole” of US$2.23 billion emerged, involving US$1.83 billion cash and US$400 million paper profit purportedly earned, which was allegedly hidden as “units” in a Cayman Islands fund known as the “Bridge Global Absolute Return Fund SPC” via an elaborate series of transactions. These created a debt of US$2.23 billion owed by the Cayman SPC fund to 1MDB, which Aabar Investments stepped in to guarantee.

To “cover” the “hole” created by the debt, the report claims that another elaborate series of transactions were put into motion which saw 1MDB pay Aabar US$2.22 billion consisting of the following payments –

· US$250 million in May, 2014

· US$975 million in September, 2014 via a Deutsche Bank loan

· US$993 million paid in November, 2014 via a partial redemption of the Cayman SPC fund.

“The scheme to cover the US$2.23 billion hole at the Cayman SPC (involved) paying Aabar US$2.22 billion as option termination fee,” the Edge claims. “Aabar then passes the money to the Cayman SPC from which 1MDB would then be able to redeem the money, thus covering the money that was already gone.”

“Our report is based on evidence corroborated by documents that include bank transfers and statements,” the Edge says in a note to its report. “There is no space to publish everything and, indeed, some material cannot be published.”

“We will now be handing over these printed documents and the hard disk that contains them to the investigators,” it adds.

Hopefully, the investigators will put them to good use.