Book review: “Billion Dollar Whale”

Update: Unfortunately the first version of this post contained (too) many spelling errors. I released it too early and somehow spellchecking does not work within the WordPress editor. Apologies.

whale

In my opinion, any investor can learn a lot about any book about financial scandals. Maybe even more compared to most “how to invest” books.

“Billion Dollar Whale” is no exception. This book tells the story of a young Malaysian guy called Jho Low who managed to steal around 5 bn USD from the Malaysian Sovereign Wealth Fund 1MDB.

Jho Low

He was brought up in a Middle Class Malaysian household, however the family was rich enough to send him first to a School in the UK and then to University in the US.

He seemed to have developed quite early the ability to befriend people easily, which later on helped him. In the UK school for instance, he became a close friend with Riza, the step son of the future Malaysian Prime Minister Datuk Seri Najib Razak. Another quality was that he liked to throw around money will partying, even while being a student which again, helped for his future “success”.

After he returned to Malysia, it was clear to him that he wanted to be a business man and started to broker deals and he even made some decent money with a shady deal. However his big moment came, when Najib Razak became prime minister of Malaysia and Jho Low persuaded him to set up a Sovereign Wealth fund that would be funded by debt.

Low managed to get into contact with a “lower level” Saudi Prince called “Turki” and with him he created the first “heist” by pretending to invest 1bn USD into an oil company but instead transferring 700 mn USD straight to his own accounts.

Later on, he collaborated with the corrupt manager of IPIC, one of Abu Dabi’s sovereign wealth funds to do the same trick two more times and embezzle up to 5 bn of the toal ~10 bn raised by 1MDB via debt issuance.

Party animal:

One of his main strategies to gain influence was excessive partying. He gained access to some US event managers and regularily “bought” Hollywood celebrities for outragous parties. For instance did he spent 85 mn USD on partying in only 8 months between October 2009 and June 2010. His regular “friends” at these occassion were among others, Paris Hilton, Miranda Kerr, Jamie Foxx and Leonardo di Caprio for whom he financed the movie “The Wold of Wall Street” for 100 mn USD. He also managed to spend 2,6 mn USD on Champagne in St. Tropez on a single night. He also gifted 8 mn worth of jewelery to Miranda Kerr which she gave back to authorities. He also bought himself a decent Yacht for 250 mn USD which was seized in 2018:

5000

Money laundering:

The authors have really digged deep in order to lay out the ways how Jho Low managed to launder the money. It is really interesting to see how easy it was for instance to buy real estate in the US with laundered money via anonymous accounts at big US law firms. Buying art at Christies or Sotheby’s also seems to be quite easy with laundered money and storing it in a “freeport” in Geneve secured him part of his “rainy day” fund. i am pretty sure that these days Jho Low would (and maybe is) big into Crpyto as this would have made life a lot easier for him

Auditors, Bankers, authorities

As in may other cases, Big 4 auditors pretended not to see. Interstingly, 1MDB used a similar trick like Wirecard with some larg off shore cash deposits where no one really looked into if they actually exist.

A lot of bankers, among them Goldman Sachs and Swiss Private Banks also looked the other way, collected the fees and enabled the embezzlement. Often, the person involved took significant private kick backs from Low. At Goldman Sachs, a German Banker played a siginifcant role in enabling the debt raising and the fraud.

Malaysian politics and US involvement

Low seems to have paid around 1 bn of the stolen money more or less direct to the prime minister plus several hundred millions in jewelery to the influential wife of the prime minister. On top of that he made the step son into a deep pocket Hollywood producer who financed “The Wold of Wall Street”. So clearly, Malaysia was not that interested in revealing the scandal. the same goes for Abu Dabi, which would have prefered to keep things quiet. At the end, US authorities triggered the prosecution because much of the money was used to buy US assets and a US Bank (Goldman) was heavily involved in placing the debt and collecting big fees. Goldman had to pay a record 2.9 bn USD fine for this.

Escape & Exile

Another similarity to Wirecard is that Low (as Marsalek) actually managed to escape. He seems to be in China now. interestingly Low manged to delay the release of the book by threatening book sellers even after he esacaped. And he tried to lobby the Trump administration into dropping the US law suits. So it seems that he still has some serious money left and can make use of it from China.

Learnings:

Clearly the most interesting part of the book is how the authors describe in detail money laundering and the preferred assets that this money flows into (real estate, art, jewelery, holywood movies). For a money launderer, no price is to high if he can “wash” the money buy buying these assets without questions asked which might explain some of the excesses in this area. As mentioned above, I do think that these days, money laundering has a lot of new angles via Crypto.

It is also interesting how easy it is to buy celebrities that willingly or unwillingly lend credibility to such a fraudster. For 100k a night even Robert De Niro will show up and ask no questions.

Overall, this story reinforces my believe that one should stay away as far as posible from people who surround themselves with celebrities and where the sources of money are unclear. 

On the flip side, Jho Low clealry had some unique qualites. i do think that he could have made the same amount of money by running some kind of WeWork or Nikola scheme. These are far safer ways to get rich quickly.

It is also interesting to see hwo common corruption and kick backs are both, in Malaysia and the Middle East. Transaktions are doen at inflated valuations and kickbacks are paid to the originators on a regular basis.

Recommendation:

Overall I can highly recommend this book to anyone interested in financial fraud cases or outragious stories in general. It is also well written and very entertaining, especially the money spending part.

i do think that story would make a real good movie. Maybe something like “The Great Gatsby 2020” or so…

 

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