Libyan plot thickens for Goldman with Palladyne ‘money-laundering’ suit

By:
Chris Wright
Published on:

Goldman’s controversial relationship with the Libyan Investment Authority was brought back into focus this week after a former executive of Palladyne International Asset Management brought a claim against the Dutch firm describing it as a ‘money-laundering operation’ for the former Gaddafi regime.

Goldman Sachs’ embarrassments in Libya took a new turn on Tuesday when a lawsuit was filed in a US district court against a host of people and institutions, including Palladyne International Asset Management – a Dutch firm whose dealings with Goldman are believed to be under investigation by the SEC and the US Department of Justice.

The suit, on behalf of a Connecticut financial services executive who worked at Palladyne and says his career was wrecked by having done so, paints a damning picture of the mysterious Palladyne, an institution whose role and relationship with the Libyan Investment Authority (LIA) has long been subject of serious questioning.

The battle for the Libyan Investment Authority
The complaint, which has been seen by Euromoney and went before the US District Court for the District of Connecticut, pulls no punches, describing Palladyne as “a kickback and money-laundering operation for the former dictatorial Gaddafi regime in Libya, operating under the public pretence of a hedge fund”.

“Contrary to its fabricated image as the ‘world’s pioneering asset management firm’, defendant Palladyne’s primary purpose was and is the laundering and concealment of funds illicitly siphoned from the Libyan national patrimony,” the complaint says. It also brings claims against headhunting firms SThree and Huxley.

The plaintiff, a Dan Friedman, who claims to have given his CV to Huxley, which in 2010 and 2011 allegedly proposed a position in Amsterdam at a financial services house, as head of risk.

The client turned out to be Palladyne, and after contorted negotiations Friedman arrived in Amsterdam in November 2011. Once he got there, he got a shock, discovering, according to the complaint, “that Palladyne was the asset management company equivalent of a Potemkin village, fronting for a kickback and money-laundering scheme relating to funds out of Libya”, rather than legitimate funds from the broader Middle East as he had been told to expect.

Goldman Sachs declined to comment. A spokesperson for Palladyne said: “These entirely untrue and ludicrous allegations have been made by a former employee who has repeatedly tried to extort money from the company. He worked with us for just two months before being dismissed for gross misconduct.

“The fact that he has now filed a suit demanding damages of $500 million demonstrates the absurd nature of his claims, and we are taking legal action to protect the company.” (The $500 million appears to be an amalgamation of figures mentioned in several separate counts; the base claim is $44.91 million.)

The spokesperson added: “As has been widely reported, our expertise in finance and asset management was sought several years ago in the negotiation of a potential resolution between the LIA and Goldman Sachs. That process was halted with the rise of the Arab Spring in Libya in 2011.”

Palladyne has been attracting attention for some time, particularly after it appeared in a leaked internal audit of the LIA – compiled with the input of KPMG – which made it into the public eye through the advocacy group Global Witness in July 2011.

One of the documents, which showed the LIA’s asset position in September 2010 with a series of damning annotations and including a page on an institution called Palladyne, stated that $300 million had been invested with the manager, it was already down 17% on the investment amount and had incurred $19 million of fees.

“To date,” a note on the document stated, “we have paid in excess of $18 million in fees, for losing us $30 million.”

A slide contained within the leaked internal audits included a graph showing the MSCI World Index relative to the Palladyne fund, and the two appeared to track each other closely, suggesting it was little more than an index process – the only difference being that it was underperforming the benchmark by almost 40%.

Losses like that were nothing new in 2010, but what stuck out about Palladyne was that nobody knew anything about it. Other slides in the same document referred to Permal, BNP, Credit Suisse – household names of investment.

So who was Palladyne?

Though Dutch, it was founded and run by Ismael Abudher, whose father-in-law Shukri Ghanem was head of the Libya’s National Oil Company, one of the most powerful positions in Libya. (Ghanem did not fare well when the revolution came: he was found dead in April 2012 in the Danube river in Vienna. At the time, he was under an Interpol red notice for alleged crimes including “fraud of public money”.)

Palladyne’s real purpose, the new suit alleges, was to launder money defalcated from Libyan government oil revenues by the family and friends of Muammar Gaddafi, and to serve as a recipient and guardian of potential bribes and kickbacks from companies doing business with the Gaddafi regime.