Goldman Sachs wins $1bn Libya lawsuit
Goldman Sachs has won a $1bn lawsuit brought against it by the Libyan Investment Authority after a judge rejected claims that the US bank had exercised undue influence over the sovereign wealth fund.
The ruling ends long-running litigation in which it was claimed Goldman exploited the LIA’s limited financial experience. A High Court trial in London heard lurid details of Goldman bankers trying to get close to LIA officials to win lucrative business from the fund by offering corporate hospitality — and in one case procuring prostitutes.
The LIA case revolved around claims that it was a fledging wealth fund taken advantage of Goldman of, pushing it into risky derivative trades in which the US bank made $200m in profits but the LIA lost its entire $1.2bn investment. The bank denied that and claimed the LIA was suffering from a classic case of “buyer’s remorse”.
Ruling on the case, Mrs Justice Rose wholly dismissed the LIA’s claims that Goldman unduly influenced the wealth fund, which came to rely entirely on its advice. She also dismissed claims that the LIA did not understand the nature of the disputed trades it had entered into.
“I find that there was no protected relationship of trust and confidence between the LIA and Goldman Sachs,” the judge said. “Their relationship did not go beyond the normal relationship that grows up between a bank and a client.” She added that there were no grounds to conclude that the level of profits made by Goldman on the nine trades was “excessive”, given the amount of work that had gone into winning them.
During the trial, the LIA had focused its case on the activities of a Goldman banker named Youssef Kabbaj and his attempt to cement the bank’s relationship with the Libyan wealth fund, which had been set up by former dictator Muammer Gaddafi with $65bn of assets. The LIA claimed in court that Mr Kabbaj procured prostitutes and that Goldman paid for staff from the LIA to stay in five-star London hotels; it also offered them tickets to Champions League football matches and to musical productions of Chicago and Lord of the Rings.
The LIA also claimed Mr Kabbaj “crossed the line” in deliberately blurring “professional and personal relationships”. It heard claims that Haitem Zarti, the brother of an LIA executive, was flown business class to Dubai and put up at the five- star Ritz-Carlton hotel in Dubai to attend a Goldman conference. Mr Zarti was later offered a prestigious 11-month internship at Goldman.
The LIA also alleged that Mr Kabbaj “procured” the services of two prostitutes for himself and Mr Zarti in Dubai as he sought to cement the relationship between Goldman and the LIA. “Salacious” text messages were exchanged between Mr Kabbaj and a prostitute called Michella in which Mr Kabbaj haggled over her $600 fee, the court heard.
Mr Kabbaj also bought iPods, chocolates, medicines and books and other gifts for the LIA, in contravention of Goldman’s policies.
However, Mrs Justice Rose concluded that it was “difficult” to believe that such gifts would have influenced the thinking of LIA executives in entering into the trades. She also said that the recollection of LIA staff “on the closeness of the involvement of Mr Kabbaj in their work has been exaggerated because of subsequent events”.
The internship proposed to Mr Zarti by Goldman was offered by the bank in the belief that he would occupy a senior position in the LIA. Although it might have “contributed to a friendly and productive atmosphere” during negotiation of the trades, it did not have an influence on the decision of the LIA to enter into the transactions, she found.
The LIA claimed at the trial that Goldman took advantage of its lack of sophistication, with one witness describing Goldman bankers descending “like a swarm” to win LIA business. At the time, the LIA claimed it was vulnerable to overtures by Goldman, which almost became an “in-house” bank, the LIA claimed.
The High Court also heard of “deeply offensive” emails from one Goldman banker, Driss Ben Brahim, who called the LIA “very unsophisticated” and said that anyone could “rape” them”. Another Goldman banker described the bank’s presentation to the LIA team as being a pitch “to someone who lives in the middle of the desert with his camels”.
Mrs Justice Rose concluded that while the Goldman internal commentary on the LIA relationship was “striking”, it must be viewed against the wider backdrop of Goldman seeing a “hugely lucrative and long-term line of business” from the LIA. The US bank “needed to fight their way to the front of the queue of other institutions lining up to provide the LIA with services”, she said.
She also said there was “insufficient evidence” for her to conclude that Goldman knew that LIA staff did not understand the trades they were entering into, even though “their confusion” over the deals and paperwork might have been because “some of the Goldman Sachs material was poorly drafted”.
The ruling — which LIA may yet appeal against — draws a line under three years of bitter litigation over events from 2007 and 2008. The two-month trial was closely watched for the light it shed on an opaque sovereign wealth fund and the relationship it forged with one of the world’s most powerful investment banks before the financial crisis of 2008.
Goldman had fiercely contested the LIA claims and told the trial that the LIA were sophisticated investors and the LIA lawsuit was a classic case of “buyer’s remorse”, because the trades simply “turned out badly” because of the 2008 financial crisis.
Its statement said: “We are pleased to win this case, with a comprehensive judgment in our favour.”
The LIA stated: “The Libyan Investment Authority is naturally disappointed with the judgment handed down today by Mrs Justice Rose. Time will be needed fully to digest the judgment and all options are being considered at this time.”
The ruling comes at a time when Goldman is seeking to restore its reputation after criticism over its work for the Malaysian government’s scandal-stricken investment fund 1MDB and after it was tarnished by its link to the controversy surrounding BHS, the UK retail chain which collapsed with 11,000 job losses.