In order to win business from a Libyan investment fund set up under Gaddafi regime, Goldman Sachs bankers paid for prostitutes, private jets and five-star hotels and held business meetings on yachts. These were told to the high court in London on Monday.
The Libyan Investment Authority has staged a claim for $1.2bn (£846m) from the investment bank and the allegations came at the start of the legal claim. Nine trades that Goldman Sachs executed for the fund between January and April 2008 saw losses and the lawyers for the LIA are claiming for those losses.
Roger Masefield, a QC for LIA, said that while Goldman Sachs generated “eyewatering” profits of over more than $200m from the trades, 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.
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, and this made the LIA feel betrayed, Masefield told the court.
One Libyan official described Goldman as the “bank of mafiosa” once the losses emerged, Masefield said.
As its status from a pariah state was being lifted, the LIA was set up in 2006 to invest the country’s oil wealth. LIA was thus a nascent sovereign wealth fund with limited abilities to understand the so-called jumbo and elephant trades, Masefield said.
Goldman’s is disputing the claim filed in 2014 and has its lawyers ready to defend its position. The bank said that the proceedings were not brought until after the trades had matured according to documents outlining its defence.
“The LIA was the victim of an unforeseen financial depression, not of any wrongdoing by [Goldman],” the bank said.
The LIA cited Goldman Sachs stating that one individual having “delivered a pitch on structured leveraged loans to someone who lives in the middle of the desert with his camels” and describing the sovereign wealth fund as having “zero-level” financial sophistication according to the documents provided to the court.
Youseff Kabbaj – a former Goldman executive 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”, Masefield told the court.
With the intention to influence decisions by the investment fund, an internship for Haitem Zarti, the brother of Mustafa Zarti, the LIA’s former deputy chief was gareed upon by Goldman.
“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” – according to the skeleton argument presented to the court by the LIA.
The internship “has been and may still be the subject of investigation” by the Securities and Exchange Commission in the US, the LIA said.
The argument that the internship influenced the LIA’s decision to enter into the trades is not believed by Goldman Sachs, the bank said.
“The claims are without merit and we will continue to defend them vigorously,” it said.
(Adapted from The Guardian)