THE US Department of Justice filed new civil suits last week to seize assets acquired with money stolen from 1Malaysia Development Bhd, which it now says could have been as much as US$4.5 billion (RM19.2 billion).

The central figure again is Low Taek Jho, or Jho Low.

In the latest civil suits filed on June 7 and 14, the various DOJ documents show how Jho Low was involved in many of the transactions and movements of billions of dollars although he held no official role in 1MDB. It appears that the DOJ investigators have obtained numerous emails involving Jho Low.

In one email he sent to his parents, brother and sister on Sept 7, 2009, after he had met Malaysian Official 1 and the Petro Saudi International co-founders Tarek Obaid and Prince Turki on a yacht off Monaco, Jho Low wrote, “Just closed the deal with petrosaudi. Looks like we have hit a goldmin(e).”

On Sept 28, 1MDB signed up to a joint venture to invest US$1 billion with Petro Saudi. It was subsequently exposed by The Edge and others that US$700 million did not go to the JV but to Good Star Ltd, a Seychelles company that The Edge reported was controlled by Jho Low. 1MDB had insisted Good Star was owned by Petro Saudi.

According to the latest DOJ suits, despite various questions raised by the banks that handled the transfer of the US$700 million to Good Star, Jho Low, with the help of 1MDB executives identified as 1MDB Officer 1 (executive director K C Tang) and 1MDB Officer 2 (CEO Datuk Shahrol Halmi), convinced Deutsche Bank and RBS Coutts to allow the money to be transferred to Good Star.

On Oct 2, 2009, Jho Low met RBS Coutts officers and provided them with a copy of an investment management agreement between 1MDB and Good Star dated Sept 29 and signed by 1MDB Officer 1 and Good Star representative Seet Li Lin. (In an infamous post on his Facebook, Seet wrote, “I feel the earth moved under my feet”, after the money was transferred.)

The DOJ suit said: “Although RBS Coutts had unblocked the funds, employees at the bank continued to have concerns about the size of, and justification for, the US$700 million wire from a state-owned entity.”

On Oct 28, 2009, two RBS Coutts officers met Jho Low and 1MDB Officer 1 in Zurich, where the latter allegedly “confirmed the false information that (Jho Low) had provided the bank about the purpose and validity of the US$700 million transfer”.

According to the DOJ, the 1MDB board never approved any investment management with Good Star.

By early 2010, Jho Low had changed the story about the US$700 million, calling it a loan from 1MDB to Good Star. “Low provided RBS Coutts with a copy of a purported loan agreement... to retroactively recognise the US$700 million transfer as a loan.”

The DOJ suit went on to say that 1MDB Officers 1 and 2 continued to conceal and misrepresent to the board of directors the true identity of the beneficiary of the US$700 million transfer.

The latest DOJ suits confirm what The Edge Financial Daily reported on July 20, 2015: “How Jho Low and PetroSaudi cheated Malaysia of US$1.83 billion cash with help from 1MDB executives.”

We were suspended a few days later. The High Court subsequently overturned the suspension.

We publish below an excerpt from the US DOJ suit with regard to the scheme and scam of the JV with Petro Saudi

Low and others tried to cover up the misappropriation of more than US$1 billion from the joint venture

1. 1MDB’s interest in the joint venture was converted into “fund units” to facilitate the fraudulent valuation of that interest

131. As noted in Paragraph 112 above, between 2009 and 2011, 1MDB purported to invest approximately US$1.83 billion in the 1MDB-PetroSaudi JV through equity and murabaha loan investments, when in fact, at least US$1.03 billion of this amount was siphoned off for the personal benefit of Low and his associates. Low and 1MDB officials attempted to inflate the reported value of 1MDB’s investment in the joint venture several times. As explained below, the co-conspirators tried to achieve this end by restructuring 1MDB’s investment in the joint venture several times, ultimately converting that interest into an opaque and illiquid asset, the value of which could not be easily verified by auditors and others. Thereafter, the co-conspirators orchestrated a fraudulent valuation of the assets underlying the investment to massively inflate their value and to create the false impression that 1MDB’s investment in the joint venture had generated a profit, when in fact it had been diminished significantly through misappropriation.

a. First restructuring: JV equity interest to debt

132. As explained above in Paragraphs 102-104, in June 2010, 1MDB sold its equity interest in the joint venture in exchange for Islamic debt notes issued by the joint venture; and 1MDB purportedly increased its investment in those debt notes in 2010 and 2011. This equity-to-debt restructuring made it easier to obscure the value of 1MDB’s investment in the joint venture. In its financial statements for the 2013 fiscal year, 1MDB valued the Islamic debt notes issued by the joint venture at approximately US$2.22 billion, notwithstanding the fact that at least US$1.03 billion had been diverted from 1MDB’s stated investment in the joint venture.

b. Second restructuring: JV debt to PSOSL equity

133. In June 2012, 1MDB exchanged those Islamic debt notes for (i) a 49% stake in PetroSaudi Oil Services Limited (“PSOSL”), a subsidiary of PetroSaudi, and (ii) a call option to acquire the remaining equity stake in PSOSL. In its financial statements for the 2013 fiscal year, 1MDB represented that the stake it had acquired in PSOSL was of a “value equivalent to” the value of the Islamic debt notes, or approximately US$2.22 billion.

134. At the time of this debt-equity swap, PSOSL’s primary assets consisted of two drillships, which had contracts with state-owned Petroleos de Venezuela, S.A. (“PDVSA”) to extract oil in Venezuela. At no point has 1MDB received payments or profits from these contracts, and in fact, PSOSL reported losses in both 2012 and 2013. PSOSL’s financial statements for the fiscal year ending Dec 31, 2012 disclose “adverse financial performance,” because, among other things, PDVSA failed to make timely payments to PSOSL under the contracts and because one of the ship’s contracts with PDVSA had expired in June 2012. PSOSL’s net assets were valued in those 2012 financial statements at US$93,621,000, and PSOSL reported a net operating loss of US$111,644,000. Upon information and belief, the value of PSOSL’s contracts with PDVSA, as well as the overall value of the company, has declined further in recent years as a result of developments in Venezuela.

c. Third restructuring: PSOSL equity to “fund units”

135. Not long after 1MDB acquired an interest in PSOSL in exchange for its supposed investment in the joint venture, 1MDB sought to restructure its holdings yet again. By restructuring its holdings, 1MDB further obscured the value of its holdings, which were not worth anywhere near their stated value or the amount that 1MDB had purportedly spent to acquire them. 1MDB officials accomplished this restructuring with assistance from bankers at BSI Bank in Singapore, with whom Low had a close relationship, and employees of Bridge Partners Investment Management Ltd. (“Bridge Partners”), an investment advisory firm with fund managers based in Hong Kong.

136. Low was himself also involved in the restructuring process. For example, in a June 13, 2012 email exchange, two BSI bankers discussed the restructuring deal and an upcoming meeting with 1MDB on the matter at the Mandarin Oriental in Singapore. The exchange closed, in relevant part, with the phrase, “1MDB all aligned to JL’s plan,” using Jho Low’s initials.

137. The restructuring involved a series of complicated and commercially unnecessary transactions, resulting in the conversion of 1MDB’s stake in PSOSL into securities in a purportedly legitimate investment fund. To accomplish this end, 1MDB “sold” its equity stake in PSOSL to an affiliate of Bridge Partners in exchange for promissory notes, and then 1MDB used those promissory notes to subscribe to “fund units” in the Bridge Global Absolute Return Fund SPC (“Bridge Global Fund” or “Bridge Global”), a Cayman-registered corporate vehicle managed by Bridge Partners. The Bridge Global Fund held only one asset, however — the very same equity stake in PSOSL that 1MDB had conveyed to Bridge Partners. The transactions had no economic substance, amounting to a round trip of various securities and commercial paper that were designed to, and did, have a specific and false accounting effect — namely, the fraudulent inflation of the value of 1MDB’s assets. 1MDB created a new wholly-owned subsidiary called Brazen Sky Limited (“Brazen Sky”) for the express purpose of holding these fund units.

138. Notwithstanding this restructuring, the value of Brazen Sky’s holdings remained linked to the value of the drillships and drilling contracts held by PSOSL, because the fund units were solely backed by shares in PSOSL. But the restructuring obscured this fact from third parties, including 1MDB’s auditors, because it interposed several additional entities between 1MDB and its holdings in PSOSL, including an ostensibly independent investment fund. Given the opaque nature of the Bridge Global Fund, it was difficult for third parties to independently verify the nature and value of the assets underlying the fund units. In this way, certain 1MDB officials and others were able to conceal the true value of 1MDB’s original investment in the joint venture, which had been significantly diminished by the diversion of more than US$1 billion to Good Star.

d. Fraudulent valuation of the “fund units”

139. On or about Sept 13, 2012, Brazen Sky opened a bank account at BSI Bank in Singapore. BSI Bank in Singapore thus served as the custodian of the Bridge Global fund units, and these securities appear on the bank statements for Brazen Sky’s account at BSI (“Brazen Sky Account” or “BS Account”).

140. During the fall of 2012, employees of BSI Bank met with 1MDB officials to discuss the valuation of the Bridge Global fund units. Among the individuals present at these meetings were “Jasmine” Loo Ai Swan (“Loo”), who was then 1MDB’s General Counsel and Executive Director of Group Strategy, and 1MDB’s Executive Director of Finance (“1MDB Officer 4”).

141. 1MDB officials sought to have the value of the fund units marked at US$2.318 billion by Bridge Partners. This is equal to the amount that 1MDB had claimed, including in a press release dated April 15, 2013, that the proceeds of its investment in the joint venture were worth, and it is slightly more than the stated valuation of the 1MDB-PetroSaudi JV debt notes, allowing 1MDB to claim its investment had generated a profit. As noted above, because the fund units were backed by shares in PSOSL, the value of those units turned on the value of PSOSL’s two drillships and drilling contracts.

142. 1MDB officials originally suggested that BSI and Bridge Partners rely on a market valuation analysis of the PSOSL assets performed by Lazard, an international asset management firm. That analysis assigned an illustrative return value of more than US$2 billion to the PSOSL assets, based on certain aggressive assumptions and projections provided by 1MDB. BSI and/or Bridge Partners did not believe this analysis was adequate to justify 1MDB’s desired valuation of the Bridge Global investment. At least one BSI banker working on the matter (“Singapore Banker 2”) expressed the view that it would be “risky” to seek another market-based valuation, implying that it would require too much “‘engineering”’ to achieve the target value; he also warned that a “[v]aluation report once done and if its too far fetched [sic], it will stick in the books forever.”

143. To avoid the need for an independent valuation of the asset at that point in time, BSI and Bridge Global agreed instead to value the assets on a cost-value basis, relying on 1MDB’s stated costs to acquire the assets. This meant that BSI valued the assets based on representations by 1MDB officials that 1MDB had given PetroSaudi US$2.22 billion in value to acquire its stake in PSOSL. A “premium” was added to that US$2.22 billion to reach a total cost-based valuation of US$2.318. On or about Nov 13, 2012, BSI issued a bank statement showing that the Brazen Sky Account held US$2.318 billion in securities.

144. During this time period, there was considerable discussion among those involved about how KPMG, 1MDB’s auditor, would evaluate the investment in the Bridge Global Fund. In advance of a Dec 12, 2012 meeting between 1MDB and KPMG, 1MDB’s Executive Director of Finance (“1MDB Officer 4”) advised several BSI employees by email, “We will need to strengthen the story on why the funds were reinvested with the Bridge, to divert the attention away from the ‘link.’” Upon information and belief, this statement referred to diverting KPMG’s attention away from the link between Brazen Sky’s holdings in the Bridge Global Fund and the PSOSL drillships, assets that were neither liquid nor worth anywhere near US$2.318 billion.

145. At the Dec 12, 2012 meeting with KPMG, which was held at BSI’s offices in Singapore, 1MDB and BS1 officials misled KPMG about the nature of the Bridge Global assets held by Brazen Sky. Minutes from the meeting show that 1MDB Officer 4 and the BSI bankers present at the meeting (Singapore Banker 2 and Singapore Banker 3) withheld from KPMG the fact that the assets underlying the Bridge Global investment consisted of two drillships and instead conveyed the impression that the fund units were backed by cash.

146. 1MDB’s audited financial statements for the fiscal year ending March 31, 2012, were signed off by KPMG on or about Dec 27, 2012. In the section of those financial statements devoted to “subsequent events,” 1MDB represented that it had invested US$2.318 billion in the Bridge Global Fund. This disclosure was the direct result of the fraudulent valuation discussed above.

147. In August 2013, 1MDB officials and others again attempted to secure a market-based valuation of the PSOSL assets to bolster BSI’s earlier valuation of the Bridge Global fund units at more than US$2 billion. Singapore Banker 2 coordinated the procurement of that valuation, with the specific aim of securing a valuation of the assets at US$2.4 billion. A Singapore-based equity research company, NRA Capital Pte. (“NRA Capital”), agreed to value the PSOSL assets at US$2.4 billion on the basis of PSOSL’s 2012 financial statements showing less than US$100 million in net assets and a net operating loss of more than US$100 million. In exchange for producing, on an urgent basis, a valuation report that met the target value, NRA Capital was paid US$300,000 by an entity called Affinity Equity International Partners Limited (“Affinity Equity”). As described in Paragraph 396 below, Affinity Equity was a shell entity nominally affiliated with Tan, which was used to funnel misappropriated 1MDB funds to Low. The NRA Capital research analyst responsible for the valuation report was also personally bribed to produce the report on an urgent basis, with the understanding that the resulting valuation would meet the client’s target value.

148. In early 2014, KPMG resigned as 1MDB’s auditor, after having expressed concern that it had insufficient information about the nature of the assets underlying the Bridge Global investment and the manner in which they had been valued.

149. The financial statements for Brazen Sky for the fiscal year ending March 31, 2013 were reviewed by 1MDB’s new auditor Deloitte and were dated March 28, 2014. They indicated that Brazen Sky held a total of US$2.318 billion in the Bridge Global Fund at the close of the fiscal year.

150. In 2014, officials at 1MDB and others engaged in further fraudulent conduct in an effort to conceal this overvaluation of the Brazen Sky assets (which itself was used to conceal the diversion of more than US$1 billion from 1MDB’s investment in the joint venture). In late 2014, 1MDB claimed publicly and in its financial statements that Brazen Sky had “redeemed” more than US$1.2 billion-worth of Bridge Global fund units in cash. As described in further detail in Part V.G below, this “redeemed” cash did not originate from the Bridge Global Fund, however, but rather from money that 1MDB borrowed from Deutsche Bank in 2014. Deutsche Bank loan proceeds were passed through the Bridge Global and Brazen Sky Accounts multiple times to give the appearance that Brazen Sky was redeeming fund units. In fact, Brazen Sky’s investments in the Bridge Global Fund were not capable of producing US$1.2 billion in cash.

2. Low made false representations and provided false documentation to conceal his role in the misappropriation

151. In 2015, following allegations in the international press that the Good Star Account was used to siphon off funds from 1MDB, Low tried to distance himself from Good Star. In doing so he offered several conflicting explanations for the various transfers into and out of the Good Star Account.

152. Employees of BSI Bank contacted Low in approximately early March of 2015 to discuss the recent allegations concerning Good Star. Although the Good Star Account was maintained at RBS Coutts, BSI was concerned about the allegations because Low’s ADKMIC BSI Account had received substantial incoming transfers from Good Star. In response to BSI’s query, Low claimed that at the time of these transfers, Good Star Limited was owned by PetroSaudi. Low claimed that he transferred ownership of Good Star to PetroSaudi prior to the US$700 million wire, by transferring custody over the company’s sole bearer share to PetroSaudi.

153. Low supported this claim by providing BS1 with a letter from Obaid, dated March 8, 2015. In that letter, Obaid “confirm[ed] that GSL [Good Star Limited] is part of the PetroSaudi Group on Sept 1, 2009 through the transfer of its bearer share to us.”

154. Contrastingly, roughly one month later, Low represented to BSI that the money that ADKMIC had received from Good Star came from Saudi Associate 1, who has no known affiliation with PetroSaudi. Low supplied a letter to BSI, dated April 2, 2015, ostensibly from Saudi Associate 1, “confirming that all Good Star Limited’s and other wire transfers to Abu Dhabi-Kuwait-Malaysia Investment Corporation’s bank account with BSI Bank between Aug 31, 2009 and Sept 30, 2013... was ultimately funded directly or indirectly by my goodself and my family” pursuant to financing agreements between ADKMIC and Saudi Associate 1. The letter indicated that Low was given “absolute discretion” under the financing agreements to use the funds from Good Star however he wished, and it “acknowledge[d] that these funds have been used for... gifts, expenses, investments, purchase of assets, and other uses.” The letter closed by stating that the payments “should not in any event be construed as an act of corruption since this is against the practice of Islam and I personally do not encourage such practices in any manner whatsoever. This is merely a personal token of appreciation of [Low’s] good work in promoting in the Middle East....”

155. Both the letter from Obaid and the letter from Saudi Associate 1 contained false statements concerning the beneficial ownership of the Good Star Account. Regardless of who had possession of Good Star’s bearer share, Low was the beneficial owner of, and sole authorised signatory on, the Good Star Account during all relevant time periods. Low was responsible for authorising transactions out of that account, and RBS Coutts bankers met and spoke with Low a number of times to discuss the account. Moreover, Low represented to BSI Bank numerous times prior to 2015 that he and/or his family owned the entity Good Star Limited.