Senior staff from the Libyan sovereign wealth fund were taken on a lavish trip to Morocco during the reign of Muammar Gaddafi by a Goldman Sachs banker in which there was “heavy drinking and girls involved”, the high court was told on Monday.
Details of the visit were contained in a witness statement released as part of proceedings for the lawsuit brought by the Libyan Investment Authority (LIA) over nine financial products it bought from Goldman Sachs in 2008 for more than $1bn (£624m).
A lawyer on secondment to the LIA from law firm Allen & Overy at the time said the Libyans had extremely limited financial knowledge and regarded the Goldman Sachs banker Youssef Kabbaj, who took them on the Moroccan trip, as a friend.
They regarded Kabbaj as a “very close friend, trusted him 100% and were completely in awe of him”, the lawyer, Catherine McDougall, said in her witness statement. Kabbaj has since left the bank.
McDougall left Allen & Overy in 2008, shortly after returning from Libya where she said she had confronted Goldman Sachs bankers about the products being bought by the LIA, which was set up in 2006 to invest Libya’s oil riches after sanctions against it had been lifted.
McDougall said the LIA staff were astonished to learn they had not bought shares but instead had taken bets on future share prices through synthetic products. These products ended up being worthless when they came to the end of their lifespan three years later. The LIA argues Goldman made an upfront profit of $350m (£218m).
She disputed a statement issued in Goldman’s defence by one of its bankers, Andrea Vella, who said the LIA staff were financially literate. She quoted Vella as saying: “I believed at the time, and still believe, that the key individuals within the management of the LIA at the time were perfectly capable of understanding, and in fact did understand, the disputed trades, the risks they involved and the potential benefits to the LIA which they offered.”
Goldman Sachs said in a statement: “We continue to believe this case is entirely without merit and intend to contest it vigorously as it moves through the legal process”.
According to McDougall’s witness statement, LIA staff told her Kabbaj had paid for items during the Moroccan trip “mostly on his Goldman corporate credit card”.
She said staff at the LIA had also told her how Kabbaj would “take them out in London for expensive nights out, again paid for on his Goldman Sachs credit card”.
She described asking LIA officials if they had conducted due diligence on the trades that are the subject of the court case and got the reply “due what?”
In its defence, Goldman said the staff of the LIA were experienced professionals and knew what they were buying.
“This claim is a paradigm of buyers’ remorse. The LIA entered into a series of bargains with GSI as the counterparty, which have turned out badly because of the market collapse in 2008. The bargains were commercial ones which the LIA decided to take,” Goldman said. “The disputed trades were not difficult to understand,” Goldman argued, and said the LIA was “anticipating very large profits” before markets tumbled in the wake of the collapse of Lehman Brothers in September 2008.
The case management hearing is expected to continue on Tuesday before the case formally begins next year.
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