The Libyan Investment Authority, created in 2006 to look after the country’s oil riches, accused the Wall Street bank of duping it into making investments that its “naive” staff didn’t understand.
The $66bn sovereign wealth fund is suing Goldman in the high court in London after it lost $1bn from investing in complex derivative investments that collapsed in value during the 2008 financial crisis.
The Libyan fund estimates Goldman made $350m in upfront profit on the trades. The bank has never confirmed or denied this figure and argues that its profits are irrelevant.
But Vivien Rose, a judge in the high court’s chancery division, on Monday ordered the US investment bank to disclose how much money it had made on the deal. She said the Libyan Investment Authority was left trying to guess how Goldman calculated its profits, an “unnecessary and expensive” exercise when Goldman was able to say how much profit it had made. She asked Goldman to provide documents showing its profits on the disputed trades and how they were calculated.
Roger Masefield QC, acting for the Libyan investment fund, told the court that Goldman Sachs had made “substantial and unusually high” profits on the deal. “We believe there was substantial overcharging ... and they were taking advantage of my client’s naivety.”
Robert Miles QC, acting for Goldman Sachs, said the bank was concerned that the focus on profit “takes on a life of its own”, although he said it would provide the “key document that will provide them with this information”.
The dispute centres on nine financial products the Libyan sovereign wealth fund bought from Goldman Sachs in early 2008. These derivative investments were essentially bets on the future share price of a host of western companies, such as financial firm Citigroup and the energy group EDF.
The Libyan fund said it thought it was buying shares in the companies and alleges Goldman Sachs showered gifts on “naive” staff to induce them to buy products they didn’t understand. But Goldman argues the trades were not difficult for the fund’s “financially sophisticated” senior bankers to understand and has dismissed the claim as “a paradigm of buyer’s remorse”.
The two sides are also tussling over how many documents Goldman Sachs should be forced to disclose to the Libyan fund’s legal team before a trial set for summer 2016. Goldman has offered to give its opponents four months’ worth of documents covering the period when the disputed trades were made. But the Libyan fund wants the Wall Street bank to throw open its files for a 20-month period and hand over the emails of a host of Goldman’s senior partners.
The case is proving to be an unwelcome spotlight on the workings of a Wall Street bank that prefers to keep a low profile. At a hearing last month, one witness said senior staff from the Libyan fund were taken on a trip to Morocco by a Goldman banker where there was “heavy drinking and girls involved”. As well as regular gifts of aftershave and alcohol, it has also been revealed that the brother of the Libyan Investment Authority’s vice chairman was awarded a highly prized Goldman internship, although the bank says this happened after the disputed deals had been agreed.
The legal action against Goldman Sachs was launched in January, in the wake of new management being brought in at the sovereign wealth fund after the 2011 civil war, when Libyan dictator Muammar Gaddafi was toppled from power and killed.
As the loss-making deals of the Gaddafi era have come under the microscope, the fund has launched separate legal action against France’s third-largest bank, Société Générale, alleging bribery. It has rebutted the claims as without merit.
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