Libyans ‘taken for a ride’ by Goldman Sachs, court hears
The Libyan Investment Authority was “taken for a complete ride” by Goldman Sachs bankers over nine financial transactions that allegedly realised upfront profits of $350m for the investment bank, the High Court has heard.
The Libyan Investment Authority was setting out allegations made in a $1bn lawsuit it filed against Goldman Sachs that claims the bank exploited the $66bn wealth fund’s limited financial experience and encouraged it to make risky and ultimately lossmaking investments.
The bank is said to have used gifts and entertainment to cement a “strategic partnership”with the LIA. The LIA’s claims are being robustly denied by Goldman.
The lawsuit centres around nine disputed trades worth more than $1bn entered into during 2008 but which ended up being “worthless” in 2011, the court was told on Monday in a pre-trial hearing.
Roger Masefield QC representing the LIA, alleged to the court that the LIA’s senior management’s trust and confidence in Goldman was “misplaced” and they had been “taken for a complete ride” by former Goldman banker Youssef Kabbaj, the bank’s former head of north Africa and his colleagues.
Mr Masefield also read out in court extracts from a witness statement made by Australian lawyer Catherine McDougall, who was then working for law firm Allen & Overy but was seconded at the time to the LIA.
Ms McDougall said in the extract read to the court that LIA staff “completely trusted Goldman and thought Mr Kabbaj was their very close friend” and she was told about their “lavish trip to Morocco” and that there was “heavy drinking and girls involved” and the trip was paid for by Mr Kabbaj mostly on his Goldman corporate credit card.
There were also “expensive nights out” in London paid for by Goldman Sachs credit card, she said in her witness statement.
Ms McDougall said in another extract of her witness statement read to the court that she was “shocked by all of this and a number of red flags were being raised in my mind”.
She asked the LIA staff whether the due diligence had been done on the disputed trades to which they replied “due what?” her witness statement says.
The nine disputed transactions were “unsuitable” and the LIA as a sovereign wealth fund had “no need for transactions with a high degree of risk”, Mr Masefield claimed to the court.
LIA’s written arguments also cited an email sent by Sofia Wellesley, who is the granddaughter of the Duke of Wellington and recently married pop star James Blunt, as she was working for the LIA at the time.
In its written arguments submitted for the pre-trial hearing, Goldman Sachs said that the LIA lawsuit is a “paradigm of buyer’s remorse”.
“The LIA entered into a series of bargains with GS as the counterparty which have turned out badly because of the market collapse in 2008. The bargains were commercial ones which the LIA decided to take,” Goldman claimed.
The bank alleges that far from being financially illiterate, key LIA staff “had long careers in international banking” and the disputed trades “were not difficult to understand”.
The LIA has advanced “vague and generalised allegations of a relationship of trust and confidence” in order to seek to raise a presumption of undue influence, Goldman claimed, adding, “This is utterly unconvincing.”
Robert Miles QC, acting for Goldman Sachs, told the court that the LIA’s case depended on the authority demonstrating that its staff were “unsophisticated” about finance otherwise the “whole pack of cards falls”, he said, adding some of the claims made about corporate hospitality were “tittle tattle”.
As part of the pre-trial hearing, the LIA is seeking to have Goldman pay part of its $1m legal costs, which it says it incurred preparing for an application by Goldman Sachs’ to strike out the case ahead of trial. The bank dropped this application in August.
The two-day hearing continues.