Malaysia Parliament Group Slams State Fund Board for 1MDB Scandal

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Reuters

@FortuneMagazine

April 7, 2016, 6:49 AM EDT

A Malaysian parliamentary inquiry on Thursday slammed the board of state fund 1MDB for being irresponsible and urged a probe into its former chief, but stopped short of implicating Prime Minister Najib Razak who was an advisor for the troubled firm.

Parliament’s Public Accounts Committee (PAC) said senior management at 1Malaysia Development Bhd withheld crucial information from the board and made transactions without its knowledge or approval.

The bipartisan PAC is the first Malaysian entity to level allegations against 1MDB, which is at the center of corruption and money-laundering investigations in the United States, Switzerland, Singapore and Luxembourg.

U.S. Department of Justice officials have asked Deutsche Bank db and JPMorgan Chase jpm to provide details on their dealings with 1MDB, as the global investigation into 1MDB widens. Goldman Sachs’ gs relation with 1MDB is also under review.

The 1MDB fund, which had piled up over 42 billion ringgit ($11 billion) in debt since its inception in 2009, said its board of directors have collectively offered their resignations after the report.

IMDB Board Resigns

The parliamentary report said former 1MDB CEO Shahrol Azral Ibrahim Halmi has to take responsibility.

“As such, enforcement agencies are asked to investigate Shahrol Azral Ibrahim Halmi and anyone else related,” the report said.

The executive board of the fund offered their resignations after the report was released.

It called for the advisory board of the fund — chaired by Prime Minister Najib Razak — to be abolished and any reference to the prime minister be changed to finance minister in the company’s memorandum and articles of association.

Najib, who founded 1MDB in 2009, was not otherwise named in the report. Najib has consistently denied any wrongdoing. He said the report showed that former Malaysian premier Mahathir Mohamed’s allegations against him were false.

Mahathir quit the ruling party in February and has stood with the opposition in calling for Najib to resign over the 1MDB scandal.

The scandal has fueled a sense of crisis in a country under economic strain from slumping oil prices and a prolonged slide in its currency last year.

Overseas Bank Statements

Shortly after it was released, opposition leader Tony Pua, who was part of the PAC, told a news conference that Najib, should at least be held culpable for the mismanagement at the fund.

“Anything else we don’t know, as we don’t have the overseas bank statements of 1MDB,” said Pua, an MP with the Democratic Action Party (DAP).

Pua lamented the failure to get crucial information on 1MDB’s foreign banking transactions. The report did scrutinize several overseas transactions that it said were made without 1MDB board approval.

One was a $700 million transfer to an account belonging to a company named Good Star Ltd. Another unapproved transaction of $300 million was made to 1MDB PetroSaudi Ltd, a joint venture company set up in the British Virgin Islands.

The report also said billions of dollars in unexplained payments were paid to a company called “Aabar Investments PJS Ltd (Aabar Ltd)” in 2012 without board approval.

The report said 1MDB has not clarified whether Aabar Ltd was a subsidiary or linked to an Abu Dhabi sovereign wealth fund called Aabar Investments or another Abu Dhabi fund called International Petroleum Investment Corp (IPIC).

The Wall street journal, citing documents from international probes, reported that investigators believe around $1 billion moved through state agencies, banks and companies linked to 1MDB before eventually finding its way into Najib’s personal accounts.

The 1MDB fund has denied that any of its funds went to the prime minister. The Attorney-General cleared Najib in January of any corruption or criminal offenses, saying the $681 million was a gift from a member of Saudi Arabia’s royal family and that most of it was returned.

The scandal has rocked Najib’s government as public outrage over the alleged mismanagement and corruption grows.

19 kids and cancelled: TV shows that got pulled due to controversy

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Reuters

@FortuneMagazine

May 28, 2015, 10:14 AM EDT

Last week, the TLC reality series “19 Kids and Counting” was in the midst of its 10th season, merrily chronicling the exploits of the extremely large Duggar family, as it had done without incident for seven years. Then, 27-year-old eldest son Josh Duggar publicly acknowledged that as a teenager, he had molested five girls. (Reports later suggested his sisters were among his victims.) To say that the revelation caused an uproar is putting it mildly.

Great efforts were quickly made by sponsors and the network to distance themselves from the calamity. On May 22, TLC pulled all episodes of the show from the air, and on Tuesday, The Hollywood Reporter reported that further sponsors, such as Payless ShoeSource, Choice Hotels and Walgreens had joined General Mills in jumping ship and pulling their ads. On Thursday, Hulu also pulled all episodes from the site.

The story is unlikely to end there, and anyone hoping to exert any sort of damage control surely knows by now that ship has sailed. The only question left is what happens to the show.

If TLC plans to cancel it, they haven’t said so. But if that happens, “19 Kids and Counting” would join a long list of other high-profile shows that networks abandoned in the face of controversy. Here’s a look at a few of them.

11 most scandalous business events of 2013

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Reuters

@FortuneMagazine

December 27, 2013, 1:53 PM EDT

A very strange scandal

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Reuters

@FortuneMagazine

November 21, 2013, 12:33 PM EDT

In mid-September the Securities and Exchange Commission said it had foiled what sounded like the most heinous financial crime since Bernie Madoff’s. A father and son in Lexington, S.C., had run a scheme that, according to the SEC, targeted the financially strapped terminally ill, netting the pair $6.5 million from 44 individuals, milking them all the way to the grave. On the day the charges were announced, Kenneth Israel, a regional director at the SEC, said the Stapleses, both named Ben, “turned the misfortune of others into a profit-making enterprise for themselves.” But, bizarrely, others were benefiting from the Stapleses’ scheme — the very people the SEC alleges the pair were ripping off: the terminally ill and their heirs.

The reason the Stapleses could pull off a scheme that seemingly benefits everyone begins with corporate bond offerings and a little-known provision called a survivor’s option. If you buy a bond and die, your heirs are allowed to cash in the bond at face value immediately rather than having to wait until it matures. The survivor’s option is meant for estate planning purposes. On Wall Street some call it a death put. Issuers have used the provision to attract elderly couples — a key debt-buying demographic.

Starting in the mid-2000s, a small group of investors saw another use for death puts: Fissures that would eventually lead to the financial crisis were starting to form, causing the price of some normally safe corporate bonds to trade at steep discounts, and the investors began recruiting terminally ill people to buy up the discounted bonds in joint accounts. When the terminally ill died, the investors were able to cash in the bonds and turn a quick profit.

Among this group of investors who saw an opportunity in death puts was Ben S. Staples, an accountant. Brenda Eason, 51, said she heard of Staples from a co-worker of hers when her sister, Patricia, 41, was dying of breast cancer in 2011. Eason’s mother had died, and she had to scrape together money to pay for the funeral. Eason’s co-worker said she knew someone who could help people like her sister, who didn’t have health insurance. Eason and Patricia met Staples and signed up. A few months later another one of Eason’s sisters, Cheryl, 43, was diagnosed with colon cancer. Cheryl signed up with Staples as well. When Patricia and Cheryl died, Eason says that each time she received the $5,000 Staples promised, which she used to pay for the funerals. She says she doesn’t see herself or her sisters as victims. “He gave money to people who had nothing at a time we needed it most,” Eason says.

The Staples case isn’t the first that the government has brought related to the survivor’s option clause. In 2011 the Justice Department indicted a Rhode Island financial planner named Joseph Caramadre in part for cashing in death puts. Caramadre led his terminally ill clients to believe that the payments were coming from a philanthropist. The Staples story is different: Eason says she and her sisters were aware that the father and son were opening joint accounts and that Staples wasn’t helping out of the goodness of his heart. “I didn’t care that he was making money,” she says.

The SEC sees it differently. It appears from the complaint that the SEC’s main beef is that the Stapleses defrauded corporate issuers by saying these were joint accounts, while the SEC claims the terminally ill had no real control over the accounts. (The Stapleses, through their lawyer, declined to comment for this piece.) In the end, it’s difficult to pin down just who was defrauded. Not the families of the terminally ill. They got money they otherwise wouldn’t have, at no risk. The people who lost money on the bonds that Staples bought would have lost it anyway. When you do the math, the Stapleses didn’t even benefit much. According to the suit, they invested $26.5 million from 2008 through mid-2012, and made $6.5 million. If the Stapleses had instead bought an S&P 500 index fund in late 2008 and sold at the same time, they would have netted nearly $10 million. So you know who really lost money in this scheme? The Stapleses. They should sue the dead people. But that would be silly.

This story is from the December 09, 2013 issue of Fortune.

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