Libya's sovereign-wealth fund alleged Goldman Sachs Group Inc.
abused a relationship of trust to earn about $222 million from it
through several complex trades arranged in 2008, according to
documents for a long-awaited trial that started in London on
Monday.
The $67 billion Libyan Investment Authority, or LIA, which is
suing the New York-based bank in the High Court in London, wants
Goldman Sachs to repay $1.2 billion to cover its losses from the
equity-derivatives trades.
Goldman Sachs denies wrongdoing and disputes the amount of
profit it made.
The Libyan fund alleges in court documents that Goldman Sachs
executives exerted "undue influence" over officials at the new
sovereign-wealth fund. The fund was created in 2006 to manage
income from Libya's oil fields after the country was removed from
the U.S. government's list of state sponsors of terrorism.
"Libya had been an international pariah for decades, cut off
from much of the rest of the world and from international financial
markets," lawyers for the fund wrote in court documents. "In its
isolation, Libya's financial system was under-developed and
unsophisticated, as were the individuals who worked within it."
Between January and April 2008, the Libyan fund entered into
nine financial derivative transactions, the disputed trades, with
Goldman Sachs. Those trades expired worthless in 2011.
"The claims are without merit and we will continue to defend
them vigorously," a representative from Goldman Sachs said.
Documents show Goldman Sachs executives saying that the Libyan
fund had little experience in finance. "They are very
unsophisticated—and anyone could "rape" them," one executive wrote
in 2008.
In another internal email exchange, a Goldman Sachs executive
wrote to a colleague that "you just delivered a pitch on structured
leveraged loans to someone who lives in the middle of the desert
with his camels."
Goldman has declined to comment on the email exchanges, which
were revealed in the court documents.
Libyan fund officials first met executives from the U.S. bank in
November 2006, court documents presented by the Libyan fund show.
The fund presented an investment opportunity that was "one of the
largest I've ever seen," a Goldman Sachs executive wrote. "We are
all over them."
Goldman Sachs banker Youssef Kabbaj "was quickly embedded within
the nascent institution" and became close to the Libyan management
team, lawyers for the Libyan fund wrote. Within Goldman, he was
encouraged to "stay a lot" in Tripoli, the lawyers wrote, citing
Goldman correspondence. Mr. Kabbaj is no longer at Goldman
Sachs.
"It's important you stay super close to the client on a daily
basis. Teach them, train them, dine them," one executive wrote to
Mr. Kabbaj, the documents show. Another told him that, "This is a
once in a career opportunity."
In 2008, Mr. Kabbaj helped arrange an internship at the bank for
the younger brother of Mustafa Zarti, an executive at the Libyan
fund. Mr. Kabbaj texted Mustafa Zarti on April 17, 2008, with the
"good news" that the internship had been arranged. In the following
days, Mr. Zarti committed to the largest four disputed trades with
Goldman Sachs, involving payments of more than $828 million.
During a visit to Dubai in early 2008 with Mr. Zarti's younger
brother, Mr. Kabbaj paid $600 for "a pair of prostitutes to
entertain them both," according to the documents submitted by the
Libyans.
Mr. Kabbaj said in an interview that he didn't pay or arrange
for prostitutes for Mr. Zarti's younger brother or any official of
the Libyan fund. He said that Goldman Sachs partners signed off on
all his expenses for the Libyan fund. Mr. Kabbaj declined to
comment on whether he paid for a prostitute for himself.
The Libyan fund describes the internship that Goldman Sachs
offered as "bespoke and highly-coveted." The internship started on
June 23, 2008, and was initially due to last three months. It was
extended a number of times.
Goldman Sachs says the internship isn't important. "We do not
believe the internship influenced in any way the LIA's decision to
enter into the trades," the representative for the bank said.
The Securities and Exchange Commission has been—and may still
be— scrutinizing the internship, lawyers for the Libyan fund said.
A representative for the SEC declined to comment.
Banking internships awarded to people connected to
sovereign-wealth funds have been investigated before. Last year,
Bank of New York Mellon Corp. agreed to pay $14.8 million to settle
allegations that it violated U.S. antibribery laws when it gave
internships to family members of officials affiliated with a Middle
Eastern sovereign-wealth fund. An SEC investigation found the
family members didn't meet the "rigorous criteria" to join the
bank's internship program, yet they were hired, to help the bank
keep the sovereign-wealth fund's business. The bank neither
admitted nor denied the SEC's findings.
The Libyan fund's assets were valued at $67 billion in 2012.
Most of the assets are currently frozen by United Nations and
European Union sanctions because of continuing conflict in
Libya.
The fund has been the subject of a power struggle between two
rival chairmen loyal to competing Libyan governments that emerged
in the civil war following the death of Moammar Gadhafi in 2011.
Both chairmen support the lawsuit against Goldman Sachs.
Write to Simon Clark at simon.clark@wsj.com
(END) Dow Jones Newswires
June 13, 2016 17:25 ET (21:25 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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