KUALA LUMPUR (Sept 9): 1 Malaysia Development Bhd (1MDB) wants the High Court here to determine if its former CEO Arul Kanda Kandasamy and former board chairman Tan Sri Mohd Irwan Serigar Abdullah had taken actions or been the cause of 1MDB suffering losses of billions of dollars.

At the start of the US$6.59 billion lawsuit filed by the state-owned fund against the two men on Monday, 1MDB’s lawyer Datuk Lim Chee Wee said in his opening statement that the trial is to establish to what extent the two individuals have to bear responsibility and liability for their actions and/or omissions in relation to their involvement in the affairs of 1MDB, from the time they were appointed in 2015 and 2016, respectively.

Lim said the two men had owed a contractual, statutory, fiduciary and common law duty to 1MDB, but both had failed their duties.

Lim said both men had failed to investigate and ascertain the status and background of 1MDB’s various investments and to recover these investments, thereby causing 1MDB to suffer loss and damage.

He said they had failed to “exercise reasonable care, skill and diligence to inquire, investigate and/or ascertain whether there were any wrongdoings by officers of 1MDB in relation to the various transactions entered into by 1MDB”.

He said they had also failed to “exercise reasonable care, skill and diligence to take appropriate actions against the wrongdoers identified in the Public Accounts Committee (“PAC”) Report and DOJ Complaint”.

The two men had also procured and/or caused 1MDB to enter into various transactions with third parties in total disregard of 1MDB’s interests, he added. “Both Arul Kanda and Mohd Irwan Serigar knew or should have known that the various transactions entered into by 1MDB were a sham, questionable and/or detrimental to the interests of 1MDB," he said.

Lim said 1MDB also claimed that Mohd Irwan and Arul had conspired to execute a purported employment extension agreement with Arul and make substantial payments to him in total disregard of the interests of 1MDB. 1MDB also claimed the said agreement was a sham, was fraudulent, illegal or void ab initio (had no legal effect).

1MDB filed the suit in May 2021, claiming both Arul Kanda and Mohd Irwan, who was also the Treasury secretary general when he held the post in 1MDB, were liable for breaches of duties and trust, resulting in the company suffering losses amounting to US$1.83 billion in relation to its investment in 1MDB-PetroSaudi International Ltd, which was converted into stakes in Brazen Sky Ltd and then converted into an investment in Bridge Global Fund.

1MDB will show in this trial that Arul had made inaccurate representations to the board of directors of 1MDB and inaccurate public statements on behalf of 1MDB regarding the status of the Brazen Sky sham investment that 1MDB entered into, Lim said.

“Evidence will also be led to show that there were several red flags or incidents relating to Brazen Sky that occurred from 2015 onwards, which ought to have given rise to a clear duty on the part of both Arul Kanda and Tan Sri Mohd Irwan Serigar to inquire, investigate and ascertain the status and background of 1MDB’s various investments and whether there were any wrongdoings by officers of 1MDB,” he said.

One of the red flags Lim mentioned was how audit firm Deloitte had, in 2015, raised serious concerns about the reliability of representations made by the management of 1MDB, in particular on the status of the Brazen Sky investment.

“Deloitte repeatedly requested for documents and meetings to independently verify the status of the investment, thereby highlighting their concerns about the nature of the Brazen Sky investment. Deloitte resigned as auditors on Feb 26, 2016,” Lim said. See: Deloitte quits as 1MDB’s auditor

Lim said the five red flags ought to have resulted in inquiries and investigations by any reasonable person in the position of Arul and/or Mohd Irwan Serigar to ascertain the background and true status of the said investment.

“If this had been initiated or undertaken at that material time, they would have discovered the fraud that had been perpetrated against 1MDB and would have been under an obligation to take the appropriate action to initiate recovery and hold accountable the person or persons who were involved in the transactions,” he said.

“But this was never done. Instead, as we will show in the evidence during the proceedings, Arul Kanda took it upon himself to present the 1MDB transactions as being beneficial for the country and a success. He publicly stated that all questions and criticisms of the 1MDB transactions were politically motivated and half-truths,” he said.

According to 1MDB's statement of claim, Arul and Mohd Irwan committed breach of trust and conspiracy by misappropriating US$3.5 billion of 1MDB money and paying it to Aabar Investments PJS Ltd (Aabar BVI) - a shell company pretending to be a subsidiary of International Petroleum Investment Company (IPIC) - and subsequently paying another US$1.265 billion to IPIC in May 2017.

Lim claimed that Arul did not deny that he had been informed in 2016 by the managing directors of IPIC and Aabar PJS that Aabar BVI and another company named Aabar Seychelles were not part of IPIC or Aabar PJS. 1MDB, however, had represented that they used this money for investment purposes with the real IPIC and Aabar PJS.

“The evidence will show that from that time onwards there did not seem to be any real or tangible urgency on the part of Arul Kanda and Tan Sri Mohd Irwan Serigar to immediately investigate the circumstances surrounding this monumental revelation or discovery, or to ascertain how such payments were made and by whom within 1MDB. No action appears to have been taken against any of the persons involved in approving and effecting this transaction,” Lim said.

1MDB also claimed that Mohd Irwan had conspired with Arul to cause 1MDB to implement an employment extension agreement that resulted in it paying RM2.91 million to Arul Kanda, regardless of 1MDB's interests in the matter. Arul’s employment extension agreement dated Feb 23, 2018 was a sham, fraudulent and illegal, the company said.

Lim said the prosecution's evidence will show that the real purpose and objectives of the said employment extension agreement were to ensure Arul did not disclose any fraud or wrongdoings in the management of 1MDB to the general public ahead of the 14th Malaysia general elections in May 2018, and to give the impression that 1MDB’s so-called rationalisation plan was ongoing.

Among others, the strategic development company is seeking RM30.91 billion from the duo as a result of the purported breaches, and the return of the RM2.91 million from Mohd Irwan in relation to the employment extension agreement.

The trial will continue on Tuesday morning via zoom. 

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