The Rise and Fall of the 1MDB Mastermind
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GUEST BLOGGER
Hallie Ayres
Contributing Writer
Published in September of 2018, Tom Wright and Bradley Hope’s Billion Dollar Whale: The Man Who Fooled Wall Street, Hollywood, and the World is a detailed depiction of one of the largest, most sprawling financial fraud schemes of the 21st century. Wright and Hope, two longtime Wall Street Journal reporters, take the reader through the almost unbelievable tale of Jho Low’s rise to conspicuous wealth and international stardom. As Wright and Hope outline in their author’s note, they hoped not only to explain Low’s methods and motives but also to present a “larger portrait, about capitalism and inequality, told through the life of Low.” By exposing the links between big banks, kleptocracy, and corruption within Hollywood and Wall Street, Wright and Hope elucidate the structural concerns that enabled Low’s scheme while crafting a gripping narrative of infuriating oversights and ostentatious decadence.
In 2015, rumors began to circulate that a Malaysian sovereign wealth fund had racked up massive debts as the result of a series of shady international deals. The scandal threatened to undermine Malaysia’s former prime minister Najib Razak and defame traders at Goldman Sachs who had received massive bonuses while helping the fund raise money. Jho Low, a close confidante and associate of Razak, was pegged as having caused the disappearance of billions of dollars from the fund by throwing extravagant parties, chartering massive yachts and financing a Hollywood production company.
After graduating from Wharton Business School in 2005, Low returned to his native Malaysia, where he developed a deal-making reputation that secured his positioning within then deputy prime minister Najib Razak’s circle of trusted advisers. As Low proved his ability to make successful funding deals with the Middle East, he established offshore accounts and shell corporations to increase his credibility to help him secure Malaysian bank loans.
Already a fixture at social events and known for his lavish spending, by 2009 Low was facing increasing debt and bad luck in his deals. Fortunately for him, Razak had just been appointed prime minister, and when he needed money to restore his political party’s popularity, he turned to Low. Low’s solution was to set up 1MDB, a Malaysian sovereign wealth fund, and to strike a funding deal with PetroSaudi, an oil field development company set up by Prince Turki of Saudi Arabia.
Low’s scheme differed from Ponzi schemes like Bernie Madoff’s in that Madoff’s “profits” were shared among investors. 1MDB, on the other hand, didn’t ask for any money or investors. Instead, the money Low amassed was borrowed on international financial markets with the assistance of Goldman Sachs. In addition, rather than violating securities laws by profiting off of junk bonds, Low simply shifted capital from a corrupt state fund into various shady corners of the underpoliced international financial system, a scheme that didn’t actually produce anything.
As Wright and Hope elucidate in a revelatory passage, “[Low] knew that transactions between governments attracted less scrutiny from auditors and banks, and so he had set about building high-level connections in Malaysia, the UAE, and Saudi Arabia. He understood that once money was sent into an anonymous offshore account, it was difficult to trace, and he’d learned how to layer transactions—sending cash around in a whirl between shell companies. And to keep everything flowing, he constantly misrepresented money as investments or loans, giving his scheme a veneer of formality” (page 101).
With this massive amount of cash on hand, Low inserted himself into every aspect of celebrity culture, frequently throwing luxurious parties in New York City, LA and Las Vegas with contracted models serving high-end champagne. By 2011, Low had agreed to finance the Hollywood production studio Red Granite, whose first feature was, fittingly, The Wolf of Wall Street, the adaptation of notorious Wall Street scammer Jordan Belfort’s memoir.
However, as Low’s and Najib’s spending became more excessive and public, certain bankers and investors grew suspicious and investigated the source of their seemingly endless supply of capital. Eventually, Xavier Justo, the Swiss banker and former director of PetroSaudi exposed the scheme to journalists and investigators, launching international law enforcement agencies to charge Low with money laundering and Najib with criminal breach of trust, money laundering and abuse of power. Because of the nature of the wealth fund, the Malaysian government must repay about $7.5 billion of the fund’s debt, an amount that is equivalent to about 2.5% of the country’s economy and will impact taxpaying Malaysians for generations to come.
While Najib has been barred from leaving Malaysia, Low remains at large and continues to deny any wrongdoing. Najib’s trial was scheduled to begin on February 12, but, due to miscellaneous postponements, it began March 13, with Najib maintaining his innocence.
In the conclusion to their book, Wright and Hope reiterate a crucial point: “Low’s genius was he sensed that the world’s largest banks, its auditors, and its lawyers would not throw up obstacles to his scheme if they smelled profits. It’s easy to sneer at Malaysia as a cesspool of graft, but that misses the point. None of this could have happened without the connivance of scores of senior executives in London, Geneva, New York, Los Angeles, Singapore, Hong Kong, Abu Dhabi, and elsewhere. Low straddled both these worlds—Malaysia and the West—and he knew exactly how to game the system” (page 400).
Following the release of the book, the entertainment company SK Global announced that their production company Ivanhoe Pictures, which recently released the box office hit Crazy Rich Asians, had secured the rights to adapt the book into a feature-length film. Michelle Yeoh, who starred in Crazy Rich Asians, has signed on to produce the adaptation, which is scheduled to hit theaters in late 2019 or early 2020. To gear up for this theatrical debut, now is the perfect time to become completely engrossed in the thrills and drama of Billion Dollar Whale.