Goldman Sachs Group Inc. has another Malaysia problem. The New York-based bank, already under scrutiny by regulators over its fundraising for the embattled 1Malaysia Development Bhd, is now accused in a lawsuit of selling out a client to curry favor with Prime Minister Najib Razak, who controlled the sovereign wealth fund.

Goldman and former managing director Tim Leissner allegedly betrayed their duties as financial adviser of EON Capital Bhd, which was taken over by Hong Leong Bank Bhd. for $1.7 billion in May 2011. Goldman used EON’s confidential information to help the bank buy EON on the cheap knowing that Razak’s brother served as a board member and another brother chaired the investment firm advising the bank, Primus Pacific Partners 1 LP said in the complaint.

The lawsuit comes as Goldman’s fundraising activities on behalf of 1MDB have drawn the attention of U.S. prosecutors. In a complaint filed last week, they laid out a road map that appeared to show how more than $2 billion raised by Goldman for 1MDB was siphoned off by politically connected people and funneled into various projects, including Hollywood movie productions, famous paintings and a Bombardier jet.

Without assigning any blame to the bank, the prosecutors’ complaint indicated that the documents circulated by Goldman prior to the bond sales were misleading. Leissner, the former vice chairman of Goldman’s operations in Asia, was the lead banker on the 1MDB deals. He resigned from Goldman after he was placed on leave in January over “inaccurate and unauthorized statements” in a letter of reference, according to Financial Industry Regulatory Authority records.

Razak wasn’t accused of wrongdoing in the U.S. complaint. Leissner wasn’t either.

Primus Pacific, EON’s biggest shareholder after buying a stake of more than 20 percent in 2008, unsuccessfully sued twice to block the sale, arguing that Hong Leong’s takeover price was too low.

“This plaintiff previously lost its challenge in the Malaysian courts seeking to stop the transaction at issue, which was then approved by shareholders,” Andrew Williams, a spokesman for Goldman, said in a statement. He called the lawsuit “misguided.”

Leissner’s attorney, Jonathan Cogan, didn’t return a call for comment.

Goldman persuaded EON’s board to hire it as financial adviser by misrepresenting and hiding conflicts of interest, according to the lawsuit, filed Tuesday in New York state court. The conflicts stemmed from existing and potential business interests in Malaysia, including its close relationship with Razak, according to the complaint.

Damages Sought

Primus Pacific seeks $510 million in damages, including a punitive award.

Goldman served as the “key adviser” to 1MDB and Leissner “repeatedly engaged in misconduct” in connection with the fund before, during and after the time the company served as EON’s adviser, according to the complaint.

Goldman initially advised EON in January 2010 that the bid was below the company’s value, and four months later recommended that the board accept a bid that was 2.8 percent higher – a proposal that was approved by shareholders, Primus Pacific said.

“As a result of Goldman Sach’s’ fraud, shareholders approving HLB’s takeover bid were unaware of critical facts that, if known, would have precluded approval of the HLB offer,” Primus Pacific said.

The case is Primus Pacific Partners 1 LP v. Goldman Sachs Group Inc., 653885/2016, New York State Supreme Court, New York County (Manhattan).

Topics New York