A year ago, Euromoney reported that the
Libyan Investment Authority was preparing litigation
against Goldman Sachs for disastrous trades the US bank had put
sovereign wealth fund into in early 2008.
Nothing happens fast in Libya, and the top management of the
fund has changed since our story. But on January 28, its
lawyers lodged a claim at Londons High Court, accusing
Goldman of deliberately exploit[ing] the relationship of
trust and confidence it has established with the LIA.
Euromoney has seen the Particulars of Claim document lodged
with the High Court by Simon Twigden, a partner and commercial
dispute resolution expert at Enyo Law, on the LIAs
behalf. It makes savage reading for Goldman; it says that
equity derivatives trades implemented by the bank lost the fund
more than $1 billion while earning Goldman $350 million in
Goldman Sachs told Euromoney: We think the claims are
without merit, and will defend them vigorously. But it
will not enjoy its behaviour in north Africa in 2008 being
brought into public light.
The claim starts out by stressing the inexperience
innocence, you might say of the fledgling LIAs
investment staff after its foundation in 2006. It says that two
investment teams were established internally the following
year: an equity or direct investment team led by former Libyan
Foreign Bank manager Abdulfatah Enaami, and an alternative
investment team led by Hatim Gheriani, a former Commerzbank
banker now at HSBC.
Between April 2007 and February 2008, these teams recruited
six employees apiece, with the main criteria being that they
should be Libyan nationals who spoke some English.
There was no requirement that the employees should
have any legal or financial qualifications or experience,
the claim says, saying they were very young, and had very
little (if any) experience of financial markets. In
particular, none, including the LIAs senior management,
had any experience of complex derivative products.
Having presented the LIA as a wide-eyed ingénue, the
claim then details the arrival on the scene of 'big bad
Goldman Sachs, in the form of Driss Ben-Brahim, Goldmans
then-head of trading for emerging markets, and Youssef Kabbaj,
an executive director who looked after Goldmans business
Through 2007 Goldman had several meetings with the LIA, and
in September put the fund into two private equity funds managed
by Goldman: $150 million into the Petershill Fund, and $200
million into the Mezzanine Fund. By the autumn, the
relationship had developed into what Goldman called a
partnership, through which it would train LIA employees and
The relationship, the claim says, was
heavily influenced by the disparity between, on the one hand,
the LIAs extremely limited inhouse financial experience;
and, on the other hand, Goldmans considerable financial
Kabbaj, in particular, sought to present himself as a
trusted friend who would always be there for them. He would
turn up with aftershave and chocolates for LIA employees, and
called them his team.
In early 2008, Kabbaj began encouraging the LIAs
equity team to enter long-dated equity derivatives
transactions. Between January and April, it set nine of these
trades, costing over $1 billion, over shares in Citigroup,
Electricite de France, Banco Santander, Allianz, ENI and
The claim not only attacks Goldmans documentation of
these trades, which involved no Isda master agreement and for
which trade confirmations took weeks or months to be supplied
to the LIA, but also argues that the LIA board did not
understand what they were buying.
By June, the LIAs legal department had begun to
realize they were in trades that they just did not comprehend.
The following month, one of them was seconded to Allen &
Overy, while an Australian lawyer, Catherine McDougall, came
the other way in exchange.
McDougall, who is now a senior lawyer at DLA Piper in Abu
Dhabi and who did have experience of complex documentation,
almost immediately found something amiss. She was struck
by how complex and one-sided the terms of the trade
confirmations were, the claim says.
She explained the trades in detail to Mustafa Zarti, a board
member and deputy executive director who had been hired by
Colonel Gaddafis son, Saif. She told him the interests of
LIA and Goldman were not aligned.
In July 2008, Zarti arranged a meeting with Kabbaj at the
LIAs Tripoli office. It did not go well. Mr Zarti
was dissatisfied with their attempted explanation, lost his
temper, and threw Mr Kabbaj and Mr Pentreath [another Goldman
banker] out of the LIAs offices, the claim
Zartis mood was hardly improved by the trades moving
against them through the financial crisis; they had lost almost
all of their value by the end of 2008 and expired worthless
during 2011. Someone involved in the LIA at the time tells
Euromoney they remember Kabbaj bringing bodyguards to meetings
around this time.