By Hadi Fornaji.
Tripoli, 31 January 2014:
Libya’s sovereign wealth . . .[restrict]fund, the Libyan Investment Authority (LIA) is suing US investment bank Goldman Sachs over claims that the bank lost it over a billion dollars.
The lawsuit was submitted to the High Court in London last week but the LIA provided details only yesterday.
In a press release, it alleges that US investment bank used the “unusually close” relationship it had developed with the institution and that as a result the LIA spent over $1 billion in equity derivatives trades which turned out to be worthless while Goldman Sachs netted $350 million in deals on LIA’s behalf.
“The central charge” the press release said, “is that Goldman Sachs deliberately exploited the relationship of trust and confidence it had established with the LIA to cause the LIA to enter into each of the disputed [equity derivatives] trades.”
The LIA claims that its own lack of financial skills compared to those of Goldman Sachs, enabled the latter to make huge profits at LIA’s expense while losing LIA a fortune.
“The unique circumstances allowed Goldman Sachs to take advantage of the LIA’s extremely limited financial and legal experience to deliberately exploit its position of influence, and to take advantage in a way that generated colossal losses for the LIA but substantial profits for Goldman Sachs,” said Abdul Magid A. Breish, LIA’s chairman since June last year.
From late 2007 onwards, the press release says, until after the disputed trades took place, “Goldman Sachs employees were extensively involved in self-described training and development of the team at the LIA, had unfettered access to its offices, systems and information, and provided extensive corporate hospitality for LIA employees.”
It claims, too, that the deals “were inadequately documented by Goldman Sachs, with the details of the actual trades undertaken being provided to the LIA weeks (and in some cases months) after the trades were executed. When the LIA received these and began to understand the true nature of the disputed trades it became clear that the trust and confidence placed in Goldman Sachs had been abused.”
While Goldman Sachs was “orchestrating these unjustly exploitative transactions, it repeatedly told the LIA that it sought a long-term relationship with the LIA as a strategic partner. This was untrue,” said Breish.
The suit centres around Goldman Sach’s investment in 2008 of $1.2 billion of LIA money into complex leveraged bets that the shares of six companies would increase during the following three years. The six companies were insurance giant Allianz,Banco Santander, Citigroup, Électricité de France, Itlian oil giant ENI and Italian bank UniCredit. This was just before before the financial crisis and in the ensuing debacle LIA’s investment was wiped out.
Other financial advisers are also said to have lost LIA money but it is, so far, the only one being sued.
Goldman Sachs has said that it will “vigourously” defend itself against the claims, which it described as being “without merit”.
It has two weeks to respond to the lawsuit. [/restrict]