Great — let's tackle this case study step-by-step using the structure provided. The goal is to
analyze ethical failings, map the misconduct to CFA Standards, compare with a
similar case, and evaluate how new regulations might mitigate such risks in future.
✅ Task 1: Group Analysis — Violations of CFA Code and Standards (15 minutes)
➤ Applicable CFA Standards Violated:
CFA
Standard
Title
Violation Description
I(A)
Knowledge of the Law
Bankers allegedly ignored due diligence and
possibly local legal standards for client vetting.
I(C)
Misrepresentation
Investors may not have received full or accurate
information about risk and fund governance.
III(A)
Loyalty, Prudence, and
Care
Duty to investors was compromised in favor of large
fees.
V(A)
Diligence and
Reasonable Basis
Underwriting occurred despite red flags regarding
governance and transparency.
VI(A)
Disclosure of Conflicts
Goldman had a conflict between profit (fees) and
client/investor interests.
IV(C)
Responsibilities of
Supervisors
Senior management failed to adequately oversee
and control the bankers involved.
➤ Stakeholders Affected:

Investors in 1MDB bonds (financial harm, deception)

Malaysian citizens (as public funds were misused)

Global capital markets (trust and transparency erosion)

Goldman Sachs shareholders and employees (financial and reputational cost)

Regulators (dealing with oversight and enforcement gaps)
➤ Ethical Decision-Making – What Should Have Been Done:

Conduct enhanced due diligence on 1MDB, given red flags.

Escalate concerns to compliance and control functions.

Require independent verification of fund governance and use-of-proceeds.

Disclose all conflicts to investors clearly.

Consider declining the transaction or restructuring it with protective mechanisms.

Senior managers should have questioned the unusually high fees and required
documentation of appropriate internal approvals and rationale.
✅ Task 2: Case Mapping and Comparator Research
2.1 Case Mapping (5 minutes)
➤ Key Facts & Standard Touchpoints:
Red Flag/Fact
Related CFA Standard
Weak due diligence on 1MDB governance V(A) Diligence and Reasonable Basis
Unusually high fees (USD 600m)
VI(A) Disclosure of Conflicts
Lack of transparency on use-of-proceeds
I(C) Misrepresentation
No adequate disclosure of risks to investors III(A) Loyalty, Prudence, and Care
Senior banker complicity
IV(C) Responsibilities of Supervisors
Reputational and market integrity damage
I(A) Knowledge of the Law
2.2 Analysis Checklist Summary
Checklist Element
Assessment
Client vs. Investor
Issuer: 1MDB; End-investors: Global bondholders
Red Flags
Governance weaknesses, lack of transparency, personal enrichment
Incentives &
Conflicts
Large fees → pressure to close deals despite risks
Due Diligence
Inadequate — red flags ignored, no escalation
Disclosure
Investors misinformed on fund use and governance
Supervision
Failed — senior oversight did not act appropriately
Market Integrity
Deal structure and misrepresentations misled investors
Decision
Alternatives
Enhanced due diligence, independent review, risk disclosures
Remediation
Culture shift, whistleblower channels, revised fee structures, 3rd
party reviews
2.3 Comparator Case: FTX (2022 Collapse)
✅ Comparator Data Schema:
Element
Details
Who/When/Where
FTX / Sam Bankman-Fried / 2022 collapse; 2024 sentencing (DOJ)
Wrongdoing Theme Misuse of customer funds, false representations, poor governance
Outcome
25-year prison sentence; significant enforcement by DOJ
Rules Implicated
US securities laws, fraud statutes
CFA Link
- I(C) Misrepresentation- III(A) Loyalty, Prudence & Care- V(A)
Diligence
1. Governance failures are high-risk, especially with opaque
3 Lessons for 1MDB entities2. Misrepresenting asset safety/use has dire consequences3.
Context
Overreliance on charismatic insiders without verification is
dangerous
2.4 Regulation Lens: EU MiCA (Markets in Crypto-Assets)
✅ Regulatory Impact Analysis:
Question
Answer
Scope & Dates
MiCA entered into force June 2023; Stablecoin rules apply June 2024;
full CASP rules by Dec 2024
Core
Requirements
Issuer authorization, disclosure documents, risk warnings, reserve
backing (stablecoins), AML/KYC
Early
Enforcement
Signals
ESMA is preparing enforcement protocols; firms face intense scrutiny for
marketing clarity and conflict-of-interest policies
If this were a crypto issuance (e.g., tokenized bond), Goldman would
have needed to: Provide accurate use-of-proceeds disclosuresImplement
Practical Impact
clearer risk statementsUndertake governance checks on 1MDB’s crypto
asset statusPossibly refuse the deal due to poor issuer transparency
CFA Mapping
- I(C): Misrepresentation (MiCA requires clarity)- V(A): Diligence (issuer
vetting)- VI(A): Disclosure of Conflicts
✅ Conclusion & Takeaways
Summary Table: CFA Code Violations in 1MDB Case
CFA
Standard
Title
1MDB Misstep
I(A)
Knowledge of the Law
Ignored red flags, failed to comply with legal
expectations
I(C)
Misrepresentation
Misleading risk disclosures
III(A)
Loyalty, Prudence, and Care Prioritized fees over investor interests
V(A)
Diligence and Reasonable
Basis
No adequate due diligence on fund governance
VI(A)
Disclosure of Conflicts
Fees not transparently explained; conflict with
investor duty
IV(C)
Responsibilities of
Supervisors
Senior oversight failed to act on warning signs
✅ Three Key Remediation Steps:
1. Reinforce Supervisory Oversight — Mandate escalation procedures and
independent reviews for high-fee/high-risk deals.
2. Conflict and Fee Transparency — Disclose fees and incentives clearly to investors
and internal committees.
3. Enhanced Due Diligence Standards — Adopt third-party verification for sovereign
or opaque counterparties.
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