Billion Dollar Whale

by Tom Wright

  Low’s focus was on turning a profit with the money he had taken out of the fund, whether through investments in the L’Ermitage hotel or other projects he was hoping to develop with Mubadala. This wasn’t a simple bank robbery; he was wagering these businesses would take off, and the profits would easily fill the hole at 1MDB. The fund’s operations proper, however, often seemed like an afterthought.

  At one point, Nik Faisal Ariff Kamil, an associate of Low’s who was head of investment at 1MDB, fretted in a board meeting that there was no cash flow to pay for debt the fund had assumed, not just the $1.4 billion in Islamic bonds but hundreds of millions of dollars more in Malaysian bank loans. These executives started to make ridiculous suggestions. Nik Faisal even proposed that 1MDB buy a Malaysian island to turn into a vacation resort, but the idea was knocked down by the board.

  The fund’s hallmark development, dubbed Project Wall Street, was a plan to turn Kuala Lumpur into a financial hub to rival Singapore or Hong Kong. The aim was to have Abu Dhabi’s Mubadala fund invest billions into the financial center, and 1MDB spent $2 million on a launch party in mid-2010 for the initiative. Low pulled strings to get the crown prince of Abu Dhabi to attend, but when he canceled at the last minute, most of the money for the party was lost, and the financial-center plan made little progress. Kuala Lumpur’s stock market and banking sector just weren’t important outside the country, and potential investors were hard to find. Still, Low persuaded Najib to grant the fund parcels of vacant city-center land at bargain-basement prices for the project.

  Amid the wasted spending and the lack of focus, many of the Ivy League recruits quit after less than a year. More worryingly to many, it became clear the fund’s main reason to exist was as a pot of political money to boost Najib’s popularity. Even without steady cash flow from operations, 1MDB was starting to channel money as “corporate social responsibility” to help encourage voters to support UMNO, the ruling party.

  “We even joked that many of the projects we were assessing were pretend projects to give the company a legitimate front,” the 1MDB employee said.

  On March 1, 2010, the new board of loyalists met at 1MDB’s new offices to discuss how the fund could help Najib’s premiership. Even though it still had no viable businesses, Chief Executive Shahrol explained to the board how a new charity arm of 1MDB was planning to pour money into the Malaysian region of Sarawak to coincide with an upcoming visit by Najib. The jungle-covered state, though remote and relatively unpopulated, was crucial to the UMNO party’s grip on national power. Lodin, Najib’s friend and chairman of the board, responded that getting the support of the “natives”—by which he meant Sarawak’s tribal peoples, some of whom still lived in longhouses in the jungle—was crucial. The board agreed without debate to provide more than half a million dollars for school scholarships and housing for the poor, which Najib could promote when he visited.

  The prime minister’s office staff was tasked with coming up with projects, like funding schools in important voting districts, and 1MDB would provide the finances.

  “If we thought it could help the incumbent government pull in some votes, we could propose that,” said Oh Ei Sun, Najib’s political secretary at the time.

  From the start, Najib was obsessed with popularity. Like any old-school Malaysian politician, he saw money—not ideas—as the only way to achieve popularity with voters, and he squeezed 1MDB for funds. A few months after the 1MDB board meeting, Najib told voters ahead of an upcoming local election in Sarawak that he would arrange federal funding for local projects only if the ruling-party candidate won.

  “You help me, I help you,” a sweating Najib promised in a stump speech ahead of the voting. It was a picture of the rot in Malaysian politics.

  Chapter 14

  Roll the Presses

  Kuala Lumpur, Malaysia, December 2009

  Some among Malaysia’s elite, hearing whispers about Mohammed Bakke Salleh’s resignation, guessed something was not right at 1MDB. Yet the fund’s problems remained unknown to the general public, in part because Najib’s government controlled the mainstream media. But there was one media tycoon the prime minister could not order around so easily: Tong Kooi Ong, owner of the Edge, an English-language weekly business newspaper. The mass-market papers, mostly progovernment, were in Malay or Chinese. The Edge catered to the country’s business elite.

  For years, Tong had been the rebel of Malaysia’s business community. The fifty-year-old, with tufts of black hair on either side of his head and a bald skull, preferred open-neck shirts to suits. He once told his wife he had a premonition he would die before fifty, and he needed to live fast before then. He could be bad-tempered with people he considered dimwitted, but he was equally charming, his face often breaking out into an impish smile. It was a combination that riled up the entitled ruling-party elites in Kuala Lumpur.

  When Tong heard the rumors about 1MDB, the newspaperman decided the Edge needed to investigate.

  In Malaysia, most major papers were subservient to the government. The ruling UMNO party directly owned some of the largest-circulation papers, whose editors slavishly put out puff pieces on politicians and policies. Newspapers had to renew their publishing licenses every year. Given the government’s control, even editors at independent newspapers often self-censored.

  The arrival of the Edge, in the mid-1990s, shook up the industry. Unlike other papers, the Edge did not shy away from writing about corruption scandals, which Tong viewed as harmful to Malaysia’s economic prospects. He had built his own fortune and was beholden to no one, and that made him a threat.

  The sixth of nine children of a Chinese-Malaysian car mechanic, Tong had grown up in the 1960s and 1970s in the gritty Malaysian port town of Klang, not far from Kuala Lumpur. His family scraped together enough to send him to university in Canada, where he eventually earned a master’s degree in finance and taught himself computer science. Returning to Malaysia in the 1980s, Tong became a securities analyst at a Malaysian firm before moving to British bank Morgan Grenfell, helping to value companies. But he was ambitious and restless, and by the 1990s he bought his own securities company and soon after acquired a full banking license.

  In the clubby world of Malaysian business, Tong was considered a maverick, and he quickly made enemies. By bringing online trading to Malaysia, he undercut other brokers, who came to view him as a dangerous upstart. Foreign fund managers liked Tong, however, and he quickly won a large share of their business in Malaysia. His cocksure manner, obvious intelligence, and contempt for mediocrity irritated financiers who owed their success to years of ties with the establishment.

  He also was political—but bet on the wrong horse. Tong befriended Anwar Ibrahim, a charismatic deputy prime minister, sensing he would soon become the nation’s top leader. But in the late 1990s Anwar fell out with Prime Minister Mahathir Mohamad, who had ruled Malaysia since 1981. When Anwar fell, jailed on trumped-up charges of sodomizing his male driver (sodomy is illegal in Malaysia), Tong was cast out into the wilderness. Amid rumors that Mahathir would seize his assets, the businessman returned to Canada, transforming himself into a successful property developer in Vancouver. But he could never remain in one place for long, and after Mahathir stepped down in 2003, Tong came back to Malaysia.

  Mahathir had forced Tong to sell his bank, but Tong still controlled the Edge. The newspaper had built a loyal following. If the press wasn’t exactly independent, at least Malaysia wasn’t a dictatorship, and the Edge’s editors had learned to push the limits of free expression, writing stories on corruption, while maintaining their license. Some topics were off-limits, say, corruption stories about a prime minister. By focusing more on business than politics, its editors had stayed on the right side of the government.

  In late 2009, Tong began to hear rumors about 1MDB. From the start, elite Malaysians gossiped about Najib’s administration. Malaysian diplomats complained about having to organize Rosmah’s shopping trips when she was abroad. More recently,
Tong had started to hear more alarming complaints. Bankers told him the Terengganu fund, the predecessor of 1MDB, had sold its Islamic bonds too cheaply. That meant whoever bought the bonds could resell them in the market for a handsome profit. Rumor had it that companies connected to Low had benefited. This kind of trick was common in Asia’s capital markets. Now, at cocktail parties in Kuala Lumpur, the talk was of Bakke’s abrupt resignation from the fund’s board.

  Tong was a visionary, not a details man. He could be disorganized, his offices a mess of papers and odd objects, including, for a time, a little-used treadmill. To implement the coverage of 1MDB he leaned on Ho Kay Tat, a veteran journalist who was publisher of the Edge. Ho’s mane of gray hair, glasses, and eagerness to please in conversation made him seem grandfatherly, even though he was only in his fifties. But his avuncular appearance belied a tenacity to dig for the truth.

  Ho had joined the Edge in the 1990s, later leaving to become chief executive of the Star, a government-aligned newspaper based in Low’s home state of Penang. But Ho had been unable to deal with the constant requests to kill negative stories about UMNO-linked companies, and he had jumped at the chance to rejoin the Edge as publisher in 2013.

  While government mouthpieces like the Star and the New Straits Times pushed out softball pieces on Najib’s administration, the Edge under Ho took a critical stance. Backed by Tong, Ho tagged a small team of reporters to start digging. In December 2009, the Edge published a story raising questions about 1MDB. Why had Bakke resigned from the board so soon after the fund’s inception? Why had the Terengganu Investment Authority sold its bonds so cheaply, despite being a risk-free, state-owned entity? What exactly was the purpose of 1MDB, and what was it doing with the money?

  One name that appeared nowhere in the piece: Jho Low. He was nonetheless disturbed by it, and began talking off the record to journalists at the Edge, trying to persuade them that 1MDB was a genuine investment vehicle. It would be three years more before the Edge began to uncover the truth. For now, Low’s secret was safe. In fact, his star was on the rise.

  Chapter 15

  Welcome to New York

  New York, April 2010

  The guests, wearing tuxedos and ball gowns, made their way up to the ballroom of the St. Regis Hotel, just off Fifth Avenue in Midtown Manhattan. It was April 16, 2010, a rainy and windswept evening, but the mood was ebullient at one of the city’s most stylish hotels. Najib and his wife, Rosmah, were in especially good spirits. A few days earlier, President Barack Obama had granted Najib a bilateral meeting on the sidelines of a nuclear-security summit in Washington. Obama, the first black American elected to the U.S. presidency, was a global icon, and Najib sensed an opportunity for a new dawn in relations between the countries.

  After the Obama meeting, Low was pulling on his connections to ensure the Malaysian first couple made a splash during their trip, and the night at the St. Regis was the centerpiece of that effort. The event was hosted by the Business Council for International Understanding, a little-known organization set up under President Dwight Eisenhower to foster ties between world business and political leaders. The night at the St. Regis was to honor Rosmah, on whom the council had decided to bestow its “International Peace and Harmony Award.” The award, the council said, was in recognition for work Rosmah had done with children’s charities back in Malaysia.

  She had set up a children’s education organization, but it was financed by public money and critics at home wondered why the Education Ministry didn’t just distribute the cash. If the council clearly hadn’t done its homework, that was fine with Najib and Rosmah. Awards like this, while essentially meaningless tokens, were crucial to the likes of Rosmah, who detested the whispers about the origins of her money. To trumpet the award, the Malaysian government spent hundreds of thousands of dollars on a double-page advertisement in the New York Times to coincide with her visit, congratulating the first lady with a full-page photo of Rosmah and the words “Welcome to New York.”

  To ensure the St. Regis party’s success, Low contacted Sahle Ghebreyesus, the Eritrean-American contact who had arranged the details of Prince Turki’s meeting with Najib aboard the Alfa Nero. He invited a bevy of Hollywood stars, many of whom would seem unlikely attendees at an award dinner for an Asian politician’s wife. The event started at 6.30 p.m. with cocktails and an Islamic fashion show before dinner. Jamie Foxx, the actor and comedian, emceed the proceedings. A number of stars, including Robert De Niro and Charlize Theron, were in attendance, giving the event a buzz. Wearing a traditional Malay sarong and loose-fitting embroidered top, both in a deep yellow color, with a diamond-encrusted bangle around her wrist and sparkling earrings, Rosmah was ecstatic at the attention.

  When dinner concluded around 10 p.m., the party really got going. Pop star Leona Lewis sang. Foxx dragged Rosmah up on stage for a flirty rendition of “You’ve Got a Friend,” and he danced with Najib. Later, De Niro, Theron, and others joined Foxx on stage to sing “We Are the World”—one of Low’s favorites. “It was like a wedding, bar/bat mitzvah, Sweet 16, quinceanera all rolled up into one,” wrote Wendy Brandes, a jewelry designer, who was present. “I was awestruck.”

  A few months later, De Niro, taking up an invite from Rosmah, traveled to Malaysia on a vacation. Rosmah told local media that she wanted him to see the country for himself, rather than believe any negative stories he had heard. Through Jho Low’s extravagant spending, and the expectation, perhaps, of a new source of film financing, Hollywood stars were taking notice of Malaysia. Yet again Low had made himself indispensable. Najib and Rosmah felt like Low could work magic, organizing state visits to the Middle East and, now, attracting the glamor of Hollywood.

  Low, however, had an even bigger target, confiding in Ambassador Otaiba that he hoped to deepen Najib’s relationship with President Obama. For years, ties between Malaysia and the United States had been lukewarm at best. Former Prime Minister Mahathir Mohamad was confrontational toward the United States, bashing “Western imperialism” and blaming “Jewish” financiers for the Asian financial crisis in the late 1990s. Western governments decried the jailing of Anwar Ibrahim for sodomy as a political vendetta. On an official visit to Kuala Lumpur, Vice President Al Gore urged the “brave people of Malaysia” to push for democracy, infuriating Mahathir. By the time Najib came to power, no sitting U.S. president had visited Malaysia since Lyndon B. Johnson in the 1960s, when the United States was entrenched in the Vietnam War.

  At their April 2010 meeting Najib presented himself to Obama as a different political animal. The prime minister was a self-professed Anglophile and talked about deepening democratic reforms. On the face of it, he seemed to be a leader the United States could rely on in the region. He appeared urbane, spoke good English, and made the right noises about Islam, having recently launched a “Global Movement of Moderates,” an effort to get Islamic countries around the world to condemn Islamist violence.

  President Obama was keen to extricate the United States from costly wars in Iraq and Afghanistan and wanted to shift focus to East Asia, where he was seeking to counterbalance China’s influence on the fast-growing economic zone. In a speech in Australia the following year, Obama would underline this pivot to Asia, and Najib, along with the leaders of Indonesia, Japan, South Korea, and Australia, was viewed by the president and his White House advisers as key to the effort.

  It was a good start, and Low would do all he could in the years ahead to ensure Najib and the American president got even closer.

  Chapter 16

  Shitty, Junk Products

  Washington, DC, April 2010

  As Najib visited New York, the United States was engulfed in political upheaval. The financial crisis, originating in America, had spread to Europe, throwing millions out of work and their homes, causing a deep recession, and inspiring the “Occupy Wall Street” protests. The anger at Wall Street banks, many of which had prospered during the crisis, was palpable.

  In late April, Goldman’s chief exec
utive, Lloyd Blankfein, tried to stay calm as he answered angry questions from U.S. senators about the Wall Street bank’s role in the financial meltdown. Senator Carl Levin, a Democrat from Michigan who headed a Senate subcommittee that had spent eighteen months looking into Goldman’s actions, wanted to know why the bank had sold securities backed by toxic subprime mortgages to clients while, at the same time, betting against them. Levin gave example after example of deals that Goldman sold to clients that its bankers described privately in emails as “shitty” and “junk.”

  “It raises a real ethical issue,” Levin said, his demeanor hostile, as he sat opposite Blankfein. In the public gallery, protesters dressed in fake prison jumpsuits held up pink signs with the word “SHAME” and photos of Blankfein’s head mounted on sticks.

  In the mid-2000s, Wall Street’s profits soared due to a boom in the U.S. housing market, as Americans signed up for loans to buy homes with little or even no money down. Banks took these poor-quality mortgages—known as subprime loans—and packaged them into securities, which they sold to big investment funds.

  At Goldman, both Blankfein and Gary Cohn, the bank’s president, who would go on to serve as President Donald Trump’s chief economic adviser, pushed subprime debt products, which the bank continued to market in the run-up to the crisis. But fearing a crash in home prices, with many Americans unable to keep up on their mortgage payments, Goldman itself had bet against the market—a trading strategy that later came to be known as the “Big Short.”