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Goldman Sachs Wins Suit Over Libya’s $1.2 Billion Loss Goldman Sachs Wins Suit Over Libya’s $1.2 Billion Loss
(35 minutes later)
LONDON — Goldman Sachs prevailed on Friday in a legal dispute with Libya’s sovereign wealth fund, with a court finding that it did not exert undue influence over the fund in a series of transactions that the fund claimed led to more than $1 billion in losses.LONDON — Goldman Sachs prevailed on Friday in a legal dispute with Libya’s sovereign wealth fund, with a court finding that it did not exert undue influence over the fund in a series of transactions that the fund claimed led to more than $1 billion in losses.
The legal battle in a London courtroom turned on whether a Wall Street firm known for its prowess and aggressiveness in deal-making had taken advantage of an inexperienced sovereign wealth fund. The Libyan Investment Authority was created in 2006 to invest Libya’s oil wealth as the country began to emerge from years of isolation with the lifting of international sanctions against Col. Muammar el-Qaddafi’s regime.The legal battle in a London courtroom turned on whether a Wall Street firm known for its prowess and aggressiveness in deal-making had taken advantage of an inexperienced sovereign wealth fund. The Libyan Investment Authority was created in 2006 to invest Libya’s oil wealth as the country began to emerge from years of isolation with the lifting of international sanctions against Col. Muammar el-Qaddafi’s regime.
In arguments this summer, the fund accused Goldman of exerting undue influence over its employees, ultimately abusing its trust and pushing the fund into improper investments.In arguments this summer, the fund accused Goldman of exerting undue influence over its employees, ultimately abusing its trust and pushing the fund into improper investments.
Goldman argued that the Libyan fund was far more sophisticated than it had claimed and that it had entered into transactions with dozens of other banks and financial institutions, including Société Générale, which the fund is separately suing.Goldman argued that the Libyan fund was far more sophisticated than it had claimed and that it had entered into transactions with dozens of other banks and financial institutions, including Société Générale, which the fund is separately suing.
“The Libyan Investment Authority is naturally disappointed with the judgment handed down today,” the fund said in a statement. “Time will be needed fully to digest the judgment and all options are being considered at this time.”“The Libyan Investment Authority is naturally disappointed with the judgment handed down today,” the fund said in a statement. “Time will be needed fully to digest the judgment and all options are being considered at this time.”
In a statement, Goldman said, “We are pleased to win this case, with a comprehensive judgment in our favor.”
The trial, with its tales of prostitutes and lavish spending on hotels and meals, was one of a series of publicized predicaments that have dogged Goldman and its reputation this year.The trial, with its tales of prostitutes and lavish spending on hotels and meals, was one of a series of publicized predicaments that have dogged Goldman and its reputation this year.
This summer, the investment bank was dragged into the controversy surrounding the collapse of one of Britain’s best known retailers, BHS, over its role as an informal adviser to Philip Green, the chain’s former owner.This summer, the investment bank was dragged into the controversy surrounding the collapse of one of Britain’s best known retailers, BHS, over its role as an informal adviser to Philip Green, the chain’s former owner.
The department store chain, which employed 11,000 people, was liquidated following its collapse in April just a year after it was sold by Mr. Green to a consortium led by Dominic Chappell, a former racecar driver and businessman who had previously declared bankruptcy multiple times.The department store chain, which employed 11,000 people, was liquidated following its collapse in April just a year after it was sold by Mr. Green to a consortium led by Dominic Chappell, a former racecar driver and businessman who had previously declared bankruptcy multiple times.
Goldman has also faced questions — and a lawsuit — over its relationship with the prime minister of Malaysia, Najib Razak.Goldman has also faced questions — and a lawsuit — over its relationship with the prime minister of Malaysia, Najib Razak.
United States authorities have accused Mr. Najib and people close to him of embezzling billions of dollars from Malaysia’s state investment fund, 1Malaysia Development Berhad, or 1MDB.United States authorities have accused Mr. Najib and people close to him of embezzling billions of dollars from Malaysia’s state investment fund, 1Malaysia Development Berhad, or 1MDB.
The Justice Department has sought to seize luxury properties believed to have been purchased with the embezzled money by people close to Mr. Najib. Some of the money also was believed to have been used to purchase art work by Van Gogh and Monet and to fund the Martin Scorsese film “The Wolf of Wall Street.”The Justice Department has sought to seize luxury properties believed to have been purchased with the embezzled money by people close to Mr. Najib. Some of the money also was believed to have been used to purchase art work by Van Gogh and Monet and to fund the Martin Scorsese film “The Wolf of Wall Street.”
Tim Leissner, a former Goldman banker in the region, served as a close financial adviser to Mr. Najib’s administration and left Goldman this year after questions were raised about improper activity related to 1MDB.Tim Leissner, a former Goldman banker in the region, served as a close financial adviser to Mr. Najib’s administration and left Goldman this year after questions were raised about improper activity related to 1MDB.
The investment bank was separately fined $36.3 million by the Federal Reserve in August, relating to an episode in 2014 when a junior employee took confidential information from the Federal Reserve Bank of New York.The investment bank was separately fined $36.3 million by the Federal Reserve in August, relating to an episode in 2014 when a junior employee took confidential information from the Federal Reserve Bank of New York.
The employee, who was fired by Goldman, received the information from a New York Fed employee. Both men pleaded guilty to stealing government property and Goldman paid a separate $50 million fine to New York State regulators.The employee, who was fired by Goldman, received the information from a New York Fed employee. Both men pleaded guilty to stealing government property and Goldman paid a separate $50 million fine to New York State regulators.
In the Libyan Investment Authority case, the wealth fund argued that it was steered into a series of complicated derivatives transactions by Goldman — when it simply wanted to invest in the stocks of Western companies — and lost $1.2 billion after the crisis hit, while Goldman pocketed more than $200 million in fees.In the Libyan Investment Authority case, the wealth fund argued that it was steered into a series of complicated derivatives transactions by Goldman — when it simply wanted to invest in the stocks of Western companies — and lost $1.2 billion after the crisis hit, while Goldman pocketed more than $200 million in fees.
The nine derivatives transactions were tied to the stocks of Citigroup, the French utility EDF and other companies.The nine derivatives transactions were tied to the stocks of Citigroup, the French utility EDF and other companies.
The Libyan fund entered into the transactions in 2007 and in 2008 in the months before the financial crisis and lost its investment as the economic downturn weighed on the stock prices of the companies in the disputed transactions.The Libyan fund entered into the transactions in 2007 and in 2008 in the months before the financial crisis and lost its investment as the economic downturn weighed on the stock prices of the companies in the disputed transactions.
As part of its case, the Libyan fund leveled accusations that Youssef Kabbaj, a former Goldman Sachs banker, tried to win influence by providing prostitutes on a lavish trip to Dubai, in the United Arab Emirates, and an internship to the younger brother of a top executive at the sovereign wealth fund.As part of its case, the Libyan fund leveled accusations that Youssef Kabbaj, a former Goldman Sachs banker, tried to win influence by providing prostitutes on a lavish trip to Dubai, in the United Arab Emirates, and an internship to the younger brother of a top executive at the sovereign wealth fund.
The bank is separately facing a Securities and Exchange Commission investigation related to the internship.The bank is separately facing a Securities and Exchange Commission investigation related to the internship.
“Instead of acting in a way deserving of the trust, confidence and reliance that Goldman Sachs placed in the L.I.A., Goldman Sachs (acting, in particular, but not exclusively, through Mr. Kabbaj) instead abused its relationship with the L.I.A., and abused the influence that it had over the L.I.A. as a result of that relationship,” Philip Edey, a lawyer for the fund, said in his written closing statement.“Instead of acting in a way deserving of the trust, confidence and reliance that Goldman Sachs placed in the L.I.A., Goldman Sachs (acting, in particular, but not exclusively, through Mr. Kabbaj) instead abused its relationship with the L.I.A., and abused the influence that it had over the L.I.A. as a result of that relationship,” Philip Edey, a lawyer for the fund, said in his written closing statement.
For its part, Goldman argued that the Libyan fund was well aware of what it was doing and had no right to cancel its trades and recover the money it lost on the transactions.For its part, Goldman argued that the Libyan fund was well aware of what it was doing and had no right to cancel its trades and recover the money it lost on the transactions.
Like many investors in early 2008, “the L.I.A. thought that the underlying stocks had reached or were close to the bottom of the market and would recover strongly over the next three years, and that they therefore represented a significant buying opportunity,” Robert Miles, a lawyer for Goldman, said in his written closing statement.Like many investors in early 2008, “the L.I.A. thought that the underlying stocks had reached or were close to the bottom of the market and would recover strongly over the next three years, and that they therefore represented a significant buying opportunity,” Robert Miles, a lawyer for Goldman, said in his written closing statement.
“The L.I.A., like those other investors, did not predict the full extent of the financial crisis,” Mr. Miles added. “Its bullish view in early 2008 turned out to be wrong; but it is no part of the law of undue influence or unconscionable bargain to allow a buyer to escape a bargain it later repents.”“The L.I.A., like those other investors, did not predict the full extent of the financial crisis,” Mr. Miles added. “Its bullish view in early 2008 turned out to be wrong; but it is no part of the law of undue influence or unconscionable bargain to allow a buyer to escape a bargain it later repents.”