Thursday 30 January 2014
Libyan Investment Authority accuses bank of “deliberately exploiting” relationship for own gain
By James Quinn, Financial Editor
4:50PM GMT 30 Jan 2014
Goldman Sachs is being sued by the Libyan Investment Authority over $350m (£212m) of profit made in a series of derivative trades which turned sour in the financial crisis.
The investment bank stands accused of “deliberately exploiting” its relationship with the sovereign wealth fund in order to make “substantial profits.”
Goldman is being sued in the High Court over a $1bn series of nine trades into companies including Citigroup, EdF, Santander and ENI.
The trades, entered into between January and April 2008, rapidly turned south as global markets tanked, leaving LIA nursing losses.
The fund is suing Goldman, arguing it made $350m of up-front profit margin on the disputed trades.
In the particulars of claim, the LIA accuses the investment bank of taking advantage of the fund’s young and inexperienced staff.
It uses the claim to allege that key bankers – including Driss Ben-Brahimm and Youssef Kabbaj – sought to influence members of LIA staff.
Mr Kabbaj, who looked after Goldman’s Libyan efforts, is alleged to have spent time in the LIA’s offices and promised fund staff the chance to study at the bank’s ‘university’ in London.
He is also alleged to have brought them small gifts – including aftershaves and chocolates – and took a number of LIA staff to his native Morocco where he “paid for extensive expenses for them on his corporate credit card.”
The LIA claims that the fund staff became dependent on the bank, and that Mr Kabbaj and Mr Ben-Brahim, who was Goldman’s head of trading for emerging markets, “reassured the LIA they were one Goldman’s key strategic clients.”
As such, it is alleged the LIA was “heavily” encouraged by Goldman to enter into a series of trades to gain leveraged exposure to a number of companies.
The first trade, a $100m derivate bet on the share price of global bank Citigroup, was entered in to on January 25, with the others following over a three month period.
But by the end of 2008, the trades had “lost substantially all of their value,” and expired worthless during the course of 2011.
“Goldman unconscionably took advantage of the LIA’s weakness,” the claim alleges, “and encouraged the LIA to enter into the disputed trades and/or each of them in order that Goldman might earn the substantial profit margins referred to above.
It is though the bank, which has yet to file a defence, will point to a lack of fiduciary relationship between it and the LIA at the point of the trades.
It is understood that it was the LIA which approached Goldman to be the counterparty in trades it wanted to carry out.
A Goldman spokesman said: “We think the claims are without merit and will defend them vigorously.”