Goldman Sachs Wins Suit Over $1.2 Billion Libyan Fund Lossesby and
London judge says Goldman Sachs wasn’t an adviser to LIA
Verdict ends case filled with claims of threats, toxic trades
Goldman Sachs Group Inc. didn’t dupe Libyan officials into investments that lost $1.2 billion, a London court ruled, putting to rest claims the bank leveraged its reputation as well as lavish meals and prostitutes to win the sovereign wealth fund’s trust.
The investment bank did not have “undue influence” over the Libyan Investment Authority when it pushed for what were ultimately money-losing derivative trades, and there is no evidence Goldman Sachs reaped excessive profits, Judge Vivien Rose said Friday.
The Libyan Investment Authority, a $60 billion oil wealth fund set up under former dictator Moammar Qaddafi, sued Goldman Sachs saying it was misled into signing derivative deals it never properly understood. The trades ended up being virtually worthless after the company shares they were linked to fell in the 2008 crisis.
“Their relationship did not go beyond the normal cordial and mutually beneficial relationship that grows up between a bank and client,” Rose said in a written decision.
The LIA alleged that the New York bank bought gifts, paid for extravagant entertainment and offered an internship to a Libyan official’s brother in an effort to secure the deals. One former Goldman Sachs salesman, Youssef Kabbaj, was accused by the LIA of hiring call girls while at a conference with a Libyan contact. During an argument in July 2008, the court heard how an LIA executive threatened to make Kabbaj disappear and told him to get out of the country.
Judge Rose said the internship, awarded to former LIA executive Mustafa Zarti’s brother, “did not have a material influence on the decision” to enter a series of derivatives trades linked to companies including Banco Santander SA. LIA officials “understood at all times that Mr. Kabbaj was a salesman” and that Goldman would make money from the investments, she said.
The LIA said following the ruling that it was disappointed with the decision, but it was too soon to consider its next steps.
“Time will be needed fully to digest the judgment and all options are being considered,” the LIA said in a statement.
Goldman Sachs shares climbed 2.5 percent to $171.65 at 10:00 a.m. in New York, as U.S. investment banks broadly climbed after JPMorgan Chase & Co. reported better-than-expected trading revenue in the third quarter. At 11:30 a.m., the shares fell back to $170.48.
“We are pleased to win this case, with a comprehensive judgment in our favor,” said Sebastian Howell, a Goldman Sachs spokesman in London.
The Libyan government under Colonel Qaddafi had a long history of using the financial system to evade economic sanctions imposed because of links to terror attacks, said Jason Pack, president of Libya-Analysis, a consultancy focused on the country. “The idea they were complete babes in the woods wasn’t really credible,” he said.
During the trial, an LIA employee testified he had never heard of Goldman Sachs, or the word derivative, before joining the fund.
Kabbaj, who didn’t testify or provide evidence, emerged as a key figure in the case, as the Goldman employee who spent the most time in Libya. He left the bank in 2008 after alleging he had been sidelined following the LIA’s complaints about the deals.
“Many critical things have been said about Mr. Kabbaj in the course of the trial,” Judge Rose said. “Some of the complaints made against him I consider implausible, but there is no doubt that on frequent occasions he ignored Goldman Sachs policies.”
Kabbaj has previously denied providing any improper entertainment for LIA employees. He didn’t respond to an e-mail and phone call seeking comment after the ruling.
The LIA’s lawsuit is the latest and largest in a series of cases in London brought by bank customers who say they were sold unsuitable products that lost money in the wake of the financial crisis. Others have involved property firms, a German water utility and Italian cities.