One Libyan official described Goldman as the 'bank of mafiosa'.
Goldman Sachs paid for prostitutes, business travel and five-star hotels in an attempt to win business from the Libyan Investment Authority (LIA), the UK high court has been told.
The accusations were made at the hearing for a claim of $1.2bn (£846m) from the Wall Street bank by the fund set up under the regime of Libyan dictator Muammar Gaddafi.
Roger Masefield, a QC for LIA, set out the background to nine trades that Goldman Sachs executed for the Libyan sovereign wealth fund between January and April 2008. When the losses emerged, Masefield said one Libyan official described Goldman as the “bank of mafiosa”.
While the LIA lost almost all its investment through the trades, one of which was the largest that the bank had undertaken in a single stock, Goldman Sachs generated “eyewatering” profits of more than $200m from the trades, Masefield said.
The LIA, Masefield told the court, felt betrayed as the trades generated excessive profits for Goldman and were unsuitable for the LIA, which was staffed by individuals who had not been appointed on merit.
The LIA was set up in 2006 to invest in the country’s oil wealth as its status from a pariah state was being lifted. Masefield argued that it was a nascent sovereign wealth fund with limited financially sophisticated abilities to understand the so-called jumbo and elephant trades. Goldman is disputing the claim, which was filed in 2014, and its lawyers will address the court on Tuesday.
In documents provided to the court by the LIA cited Goldman Sachs describing the sovereign wealth fund as having “zero-level” financial sophistication and one individual having “delivered a pitch on structured leveraged loans to someone who lives in the middle of the desert with his camels”.
Masefield told the court that one former Goldman executive – Youseff Kabbaj - had been told to “stay a lot in Tripoli. It is important you stay super close to clients on a daily basis. Teach them, train them, dine them”.
Goldman agreed an £36,000 internship for Haitem Zarti, the brother of Mustafa Zarti, the LIA’s former deputy chief, which the LIA argues was intended to influence decisions by the investment fund.
According to the skeleton argument presented to the court by the LIA: “Mr Kabbaj took Haitem Zarti on holidays to Morocco on various occasions. Mr Kabbaj also took him to Dubai for a conference, with the business class flights and five-star accommodation being paid by Goldman Sachs. Documents disclosed by Goldman Sachs show that during that drip Mr Kabbaj went so far as to arrange for a pair of prostitutes to entertain them both one evening.”
The LIA said the internship “has been and may still be the subject of investigation” by the Securities and Exchange Commission in the US.
Goldman Sachs said it does not believe the internship influenced the LIA’s decision to enter into the trades. “The claims are without merit and we will continue to defend them vigorously,” it said.
Kabbaj is not being called to give evidence for Goldman, Masefield said, reading out a settlement agreement between the bank and Kabbaj, who had been promised a $9m bonus by Goldman, but received $4.5m. The aim, Masefield argued, was intended to stop Kabbaj’s concerns about the trades being aired.
Nine trades - on banking companies Citigroup, Santander and UniCredit, French electricity company EDF, utility ENI and German insurer Allianz - are the subject of the case.
The LIA argued that the case is one of of “abuse of trust, undue influence and unconscionable bargain”.
It added: “It most emphatically is not, therefore, as Goldman Sachs would have it, one of little more than ‘buyer’s remorse’; of a counterparty who like many others lost money as a result of the market crash in 2008 and now wants to rewind the clock.”
The case continues.
This article was written by Jill Treanor, for theguardian.com on Monday 13th June 2016 13.51 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010