Goldman Sachs hit with lawsuit that involves ties to Malaysian fund 1MDB

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Goldman Sachs is being sued by a shareholder of one of its former clients over alleged fraudulent misrepresentations that involve links to the prime minister of Malaysia.

Primus Pacific Partners, a private equity firm and the largest shareholder of Malaysian bank EON Capital, is suing Goldman for $510 million for fraud and breach of fiduciary duty, according to a statement released Tuesday. The suit claims that Goldman concealed a conflict of interest with Malaysian Prime Minister Najib Razak when it was advising EON.

Goldman Sachs was an adviser to 1Malaysia Development Berhad, also known as 1MDB, a development fund established by the prime minister, the lawsuit says. Meanwhile, Goldman was also financial adviser to EON, which was weighing a takeover bid by Hong Leong Bank — a bank that allegedly has close ties to brothers of the prime minister.

Primus claims that Goldman first called the Hong Leong bid "unfair," only to reverse course weeks later. According to the suit, the final price of the merger was "hundreds of millions of dollars below fair value" — but the reversal may have furthered Goldman's role as adviser of 1MDB. The original complaint can be read here .

The suit comes as 1MDB faces international regulatory scrutiny over accusations that its funds were misappropriated by Prime Minister Najib. U.S. prosecutors sued last week to seize more than $1 billion in assets they said were tied to a scheme to launder money stolen from the fund.

Goldman Sachs declined to comment when contacted by CNBC.

Separately this week, the New York Times reported that the Federal Reserve is preparing an enforcement action against Goldman Sachs related to confidential government information that was leaked from the Fed to one of its bankers.

—CNBC's Kate Kelly contributed to this report.

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