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article imageLibya's sovereign fund sues Goldman Sachs for $1.2 billion

By Ken Hanly     Jun 13, 2016 in Business
London - Lawyers for Libya's sovereign wealth fund claim that Goldman Sachs exploited inexperienced staff members to close inappropriate deals which cost the fund a humongous $1.2 billion.
The accusation was made at London's High Court at a high profile trial launched by the fund against the prestigious U.S. investment bank. The allegations of shady dealings include the use of prostitutes back in 2008. Goldman Sachs denies that it did anything wrong and that the losses to the Libyan Investment Authority (LIA) sovereign fund were simply due to the 2008 financial crash and had nothing to do with the relationship of the LIA to Goldman Sachs.
The lawyer for LIA, Roger Masefield, read out an internal memo that was sent by Driss Ben-Brahim a Goldman Sachs partner: Ben-Brahmin said that the fund was "very unsophisticated" and that anyone could "rape them." Youssef Kabbaj, a Goldman Sachs employee gained the trust of "young and impressionable staff" and was able to sell it complex products that ended up costing the LIA a loss of over $1.2 billion. The LIA lawyers claim that the products earned Goldman Sachs over $220 million in profits. The LIA is suing Goldman Sachs for the $1.2 billion loss.
Kabbaj also forged a close relationship with Haitem Zarti, the younger brother of the chair of the LIA Mustafa Zarti. Kabbaj secured an internship for the brother at Morgan Stanley and took him on holidays in Morocco and to a conference in Dubai. The LIA lawyers said: "it appears from Goldman Sachs' disclosure that, while there, Mr Kabbaj arranged for two prostitutes to spend the evening with them at a cost of $600." The LIA subsequently rushed through a large number of deals without either conducting due diligence or seeking independent advice. The investments became worthless with the subsequence collapse of Lehman Brothers and the financial collapse.
The chair of the LIA, Mustafa Zarti became clear about events at a meeting with Goldman Sachs in 2008. He threw Kabbaj out of the meeting Later he called Goldman Sachs a "bank of Mafiosi" and claimed that it had abused his trust by selling him risky products that were not suitable for a state fund. The lawyers cited an email sent by a Goldman Sachs vice-president describing a presentation to the fund: "You just delivered a pitch on structured leveraged loans to someone who lives in the middle of the desert with his camels."
Goldman Sachs claims it sold standard products in the financial world and claimed: "The credit crisis and its impact on global markets turned out to be far more prolonged than the LIA and the great majority of market participants had anticipated. The LIA was the victim of an unforeseen financial depression, not of any wrongdoing."
Wikipedia describes the purchase from Goldman Sachs and its subsequent decline: Between January and June 2008, the LIA paid $1.3 billion for options on a basket of currencies and options on six stocks (Citigroup Inc., UniCredit SpA, Banco Santander, Allianz, √Člectricit√© de France and Eni SpA) via Goldman Sachs. By February 2010, the value of these investments was 0.025 billion - a 98% loss.
As of December 31, 2012 the value of the fund was estimated at $67 billion. There is still a dispute at the LIA as to who should be chairman and as a result the business advisory firm BDO has been appointed by the court to manage the suit on LIA's behalf. The LiA is also filing suit against the French Investment Bank Societe General for $2.1 billion on the basis of another set of trades in 2007 and 2008. The case is not expected to go to trial until next January. The Goldman Sachs trial is scheduled for seven weeks. Faiez Serraj the Prime Minister of the UN-brokered Government of National Accord is on the Board of Trustees of the LIA.
More about Libyan Investment Authority, Goldman Sachs, Financial collapse
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