Goldman Executive Says Prostitutes for Libyan ‘Inappropriate’

  • Banker testifies in London court for $1 billion LIA lawsuit
  • Vella says former Goldman employee got too close to client

Goldman Sachs Group Inc. executive Andrea Vella said the relationship between one of the bank’s employees and the relative of a Libyan Investment Authority official wasn’t appropriate and he would have been worried had he known about it.

In his second week of testimony for the Libyan fund’s $1 billion London lawsuit, Vella, the co-head of Asia investment banking, was asked about an incident in which another Goldman banker allegedly paid for two prostitutes while on a 2008 trip to Dubai with Haitem Zarti, the brother of an LIA executive.

“It’s inappropriate,” Vella said, even though the banker, Youssef Kabbaj, allegedly used his own money. “It seems to me more of a personal relationship at that point,” Vella told the court.

The Libyan fund’s case against Goldman Sachs relies on how much the bank was able to influence its former client, whether close ties between Kabbaj and LIA officials were an example of good customer service or, as the fund alleges, an attempt to exploit them for profit. Libya’s $60 billion oil wealth fund lost almost all of the $1 billion it invested in derivatives sold by the bank when markets collapsed in 2008.

Kabbaj, who has since left Goldman Sachs, didn’t immediately respond to an e-mail seeking comment. He has previously denied providing any improper entertainment for LIA employees.

‘Just Be Close’

Vella was asked about Zarti’s 11-month internship at Goldman Sachs’ London office, and trips with Kabbaj to Morocco and Dubai. “At some point I thought he was going to be head of the LIA in London,” Vella said, explaining the bank’s interest in Zarti.

The LIA’s lawyer Philip Edey read out a text Vella sent to Kabbaj saying: “Ok my man, just be close to Zarti junior,” and asked if he intended the two men to be as close as they became.

“I would have been concerned,” Vella said.

Goldman Sachs and other investment banks have faced regulatory scrutiny over the practice of offering internships and employment to relatives of clients. The New York bank argues the Zarti internship had no effect on the LIA’s decision to enter into the disputed trades.

Competition

Vella admitted asking Kabbaj to stop LIA officials from meeting with his former colleagues at JPMorgan Chase & Co. when they visited Tripoli.

“You wanted Mr. Kabbaj to see if he could use his influence at the LIA to stop the LIA even seeing JPMorgan,” Edey said. Vella had sent messages to Kabbaj asking him to “take care of it.”

“That may have been part of it,” Vella said. He said didn’t want to share the LIA’s business with JPMorgan, where he worked up until 2007.

Goldman’s lawyers have accused the LIA of buyer’s remorse, saying the fund entered freely into deals that turned out badly. Vella testified last week that he considered the fund’s executives sophisticated enough to understand derivative deals and that its relationship with the bank was not unusual.

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