Goldman Sachs has won a $1bn lawsuit brought against it by the Libyan Investment Authority after a High Court judge in London rejected claims that the US bank had exercised undue influence over the sovereign wealth fund.
The case revolved around the LIA’s claims that it was a fledging wealth fund that Goldman took advantage of — pushing it into risky derivative trades in which the US bank made $200m in profits while the LIA lost its entire $1.2bn investment.
The bank denied the claims and said 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. She also dismissed claims that the LIA did not understand the nature of the disputed trades into which it had entered.
“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 had secured lavish gifts and hospitality for its officials.
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”.
In addition, Mrs Justice Rose found that a Goldman Sachs internship proposed to Haitem Zarti, the brother of an LIA executive, might have “contributed to a friendly and productive atmosphere” during negotiation of the trades, but did not have an influence on the decision of the LIA to enter into the transactions.
She said there was “insufficient evidence” 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 — against which LIA may yet appeal — draws a line under three years of bitter litigation over events that took place between 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 LIA officials were sophisticated investors and the LIA lawsuit was “buyer’s remorse”, because the trades simply “turned out badly” amid the 2008 financial crisis.
Its said in a statement: “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.”