The Libyan Investment Authority, a government-managed sovereign wealth fund, is suing Goldman Sachs for $US1 billion and claims that the bank “took them for a complete ride,” according to a report by the Financial Times.
In the lawsuit, LIA claims that Goldman exploited the fund and “encouraged” it to pursue 9 extremely risky and ultimately unsuccessful investments worth over $US1 billion in 2008, according to the FT’s report.
But by 2011, these trades were “worthless.”
The LIA claims that Goldman took advantage of the LIA’s (allegedly) financially illiterate staff in order to make money, and that Goldman seduced its staff with fancy gifts and — for lack of a more politically correct term — bribes.
The LIA claims that they “completely trusted Goldman” and believed that its former head of north Africa, Youssef Kabbaj was “their very close friend.”
Apparently, Kabbaj took the LIA staff members on a “lavish trip to Morocco” that included “heavy drinking and girls.” The trip was expensed entirely on Kabbaj’s Goldman corporate credit card.
And there’s much more where this came from, including “expensive nights out” in London.
There are two sides to every legal battle
Although it’s pretty easy (and trendy) to point fingers at big banks, the whole lawsuit starts to get very messy when you dive deeper into the LIA’s own history.
Additionally, the LIA’s advisory board included Lord Jacob Rothschild, the heir to the famous banking dynasty.
So it appears that there was at least one person involved with the LIA who was not financially illiterate.
Another member on the LIA’s advisory board was Sir Howard Davies, the former director fo the London School of Economics.
And he has a bit of a shady history with the Gaddafi regime.
Back in 2011, Sir Davies resigned from LES when “an independent report found that £1.5m in donations the university accepted may have been the proceeds of bribes paid to the Gaddafi family by companies seeking ‘business favours’ from the regime,” according to the FT.
And remember that “coveted” internship that Goldman dangled in front of the LIA?
“Goldman also admits that there were discussions over whether it could accommodate an internship for Haitem Zarti, the brother of Mustafa Mohamed Zarti who was the LIA’s deputy executive director. Mr Zarti was appointed to the LIA at the suggestion of Colonel Gaddafi’s son Saif Al Islam Gaddafi”, according to the Financial Times.
What Goldman says about the accusations
Goldman admitted “in court documents that it used an internship, training, small gifts, occasional travel and entertainment to cement a “strategic partnership”.
However, the bank denies that they “encouraged” the LIA to take part in those transactions.
And they stated that the financial transactions in question were “relatively straightforward and easy to understand” and that given better market conditions the LIA would have made major gains.
Plus, Goldman says that “key” LIA members “had long careers in international banking”, suggesting that the fund’s staff was not as illiterate as they claim in their suit.
We’ll see how it all shakes out.