1Malaysia Development Berhad (1MDB) has taken legal action to have the High Court in Malaysia decide whether its former CEO, Arul Kanda Kandasamy, and former board chairman, Tan Sri Mohd Irwan Serigar Abdullah, were responsible for decisions or actions that led to substantial financial losses for the state investment fund.
During the opening of the trial for a lawsuit amounting to US$6.59 billion, 1MDB's legal representative, Datuk Lim Chee Wee, laid out the case's core issue: whether Arul Kanda and Tan Sri Mohd Irwan were liable for their actions or omissions during their tenure at 1MDB, beginning in 2015 and 2016 respectively.
Datuk Lim stated that both men held a contractual, statutory, fiduciary, and common law duty to act in the best interests of 1MDB, but they allegedly failed in these duties. According to Lim, the two individuals did not take the necessary steps to investigate and confirm the status and background of various 1MDB investments, nor did they make efforts to recover those investments. This negligence, he argued, resulted in significant financial losses and damage to the organization.
Furthermore, Lim asserted that the two former executives did not exercise “reasonable care, skill, and diligence” to investigate potential wrongdoings by 1MDB officers concerning various transactions entered into by the fund. He highlighted that both men failed to take proper action against wrongdoers identified in the Public Accounts Committee (PAC) Report and a complaint by the U.S. Department of Justice (DOJ).
It was also noted that Arul Kanda and Tan Sri Mohd Irwan allegedly caused 1MDB to enter into various transactions with third parties, disregarding the company’s best interests. "Both Arul Kanda and Mohd Irwan Serigar were aware, or should have been aware, that many of the transactions conducted by 1MDB were fraudulent, questionable, and/or detrimental to 1MDB," Lim emphasized.
Additionally, Lim mentioned that 1MDB claimed both men had conspired to implement a questionable employment extension agreement for Arul Kanda. This agreement, according to 1MDB, resulted in substantial payments to Arul and was entirely against the organization’s interests. 1MDB argued that the agreement was a sham and that it was fraudulent, illegal, or void from the outset.
The lawsuit was filed in May 2021, and 1MDB alleges that Arul Kanda and Tan Sri Mohd Irwan, who also served as the Treasury Secretary-General, breached their duties and responsibilities. As a result, the company incurred losses of US$1.83 billion related to investments in 1MDB-PetroSaudi International Ltd, which were subsequently converted into stakes in Brazen Sky Ltd and then further into investments in Bridge Global Fund.
During the trial, 1MDB plans to demonstrate that Arul Kanda made false representations to the company's board and issued misleading public statements on behalf of 1MDB regarding the status of the Brazen Sky investment, which the fund had entered into. “Evidence will show that there were numerous warning signs from 2015 onward, which should have triggered a duty by both Arul Kanda and Tan Sri Mohd Irwan Serigar to investigate the background and legitimacy of 1MDB’s various investments and to determine if there were any wrongdoings by 1MDB officers,” Lim explained.
One significant red flag mentioned by Lim was that in 2015, audit firm Deloitte raised serious concerns about the reliability of representations made by 1MDB management, specifically regarding the Brazen Sky investment. “Deloitte repeatedly sought documents and meetings to independently verify the status of the investment, highlighting their concerns over the nature of the Brazen Sky investment. Deloitte eventually resigned as 1MDB’s auditor on February 26, 2016,” Lim elaborated.
He pointed out that any reasonable person in the position of Arul Kanda or Tan Sri Mohd Irwan Serigar should have initiated inquiries and investigations regarding the background and true status of the investment in response to these concerns. If they had acted promptly, they would have likely uncovered the fraud perpetrated against 1MDB and would have been obligated to take appropriate action to recover the funds and hold accountable those involved in the transactions.
However, according to Lim, no such steps were taken. Instead, evidence will show that Arul Kanda publicly portrayed 1MDB’s transactions as beneficial for the country and dismissed criticisms as politically motivated or half-truths.
Further allegations suggest that both Arul Kanda and Tan Sri Mohd Irwan Serigar were involved in a breach of trust and conspiracy by misappropriating US$3.5 billion from 1MDB and transferring it to Aabar Investments PJS Ltd (Aabar BVI), a shell company falsely claiming to be a subsidiary of the International Petroleum Investment Company (IPIC). Another US$1.265 billion was allegedly paid to IPIC in May 2017 under similar pretenses.
Evidence presented by 1MDB claims that Arul Kanda was aware, as early as 2016, that Aabar BVI and another entity, Aabar Seychelles, were not legitimate parts of IPIC or Aabar PJS, contrary to what 1MDB had represented. Despite this knowledge, it appears there was no urgent action taken by Arul Kanda or Tan Sri Mohd Irwan Serigar to investigate these revelations or ascertain who within 1MDB authorized such transactions.
Moreover, 1MDB alleges that Tan Sri Mohd Irwan conspired with Arul Kanda to facilitate an employment extension agreement that resulted in RM2.91 million being paid to Arul Kanda, disregarding the company's interests. The agreement, dated February 23, 2018, was purported to be fraudulent, illegal, and without any legal effect.
Lim asserted that the evidence will demonstrate that the real intention behind this employment extension agreement was to ensure Arul Kanda did not disclose any wrongdoing or fraud in 1MDB's management ahead of Malaysia's 14th general elections in May 2018 and to create an impression that the company’s so-called rationalization plan was still in progress.
1MDB is seeking RM30.91 billion from Arul Kanda and Tan Sri Mohd Irwan as compensation for the alleged breaches, along with the recovery of the RM2.91 million related to the employment extension agreement. The trial will continue on Tuesday morning via Zoom, where more evidence and testimonies are expected to be presented.
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