Libya vs Goldman Sachs – the secret memo

Chris Wright
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Last month Goldman Sachs filed papers in the UK courts seeking to have a case for mis-selling brought by the Libyan Investment Authority summarily dismissed. This is not the first attempt by the bank to end the problems caused by its engagement with Gaddafi-era Libya. In a 2010 memo, Goldman proposed a complex structure that would have involved a $52 million payment in exchange for unwinding trades that had cost the Libyan fund almost $1.3 billion. While the US investigates, LIA chairman Abdulmagid Breish is making plans for the sovereign wealth fund’s future – and he wants his country’s money back.

There are recruitment adverts out at the Libyan Investment Authority. Libya’s sovereign wealth fund, seeking to regain direction after the country’s revolution, has employed consultants for a few key roles. There’s the CEO. And the CFO. And the chief investment officer.

And the head of risk, the head of internal audit, and the chief operating officer.

Oh, and the deputy CEO. And the head of legal.

There are revamps, and then there’s the LIA. Founded by Muammar Gaddafi’s second son, Saif Al Islam Gaddafi, in 2006, the fund has already gone through more drama and upheaval than most of its sovereign wealth peers have endured in their combined history. 

Muammar Gaddafi’s
son Saif

Waves of executives and managers have come and gone, foreign banks and fund managers have sold it extraordinary duds that soured during the financial crisis, the country has undergone painful revolution during which Saif was jailed and his father killed, its funds have been frozen by the UN (and remain so, at the fund’s own insistence, today) and at the end of it all it finds itself with a glut of legacy headaches and an empty management bench.

Now, as it seeks to move forward, it must also look back. This year it has launched litigation against some of the biggest names in global banking, seeking to recover billions of dollars for deals those banks put the LIA into during the Gaddafi regime. And no matter how much Libyan executives seek to paint themselves as a breath of fresh air, correcting the sins of the past, they must inevitably face scrutiny for just what their role in the bad old days really was.

Transgressions of the past

AbdulMagid Breish, the chairman and acting CEO of the LIA, is an urbane and confident presence. He is absolutely fluent in English, while his thick glasses and swept-back hair give him something of the appearance of a mid-career Henry Kissinger. 

LIA AbdulMagid Breish
AbdulMagid Breish, the 
chairman and acting CEO 
of the LIA
Breish has plenty of ideas for the future, but this year he’s been in the news for taking on the transgressions of the past, launching litigation to claim more than $2.5 billion from Goldman Sachs and Société Générale for instruments those banks sold to the LIA between 2007 and 2009. 

Today, flanked by a lawyer who never feels a need to rein him in, Breish is adamant the LIA is in the right on both cases. On Goldman – a case that rests on demonstrating that Goldman abused the trust it had built with the fledgling and somewhat wide-eyed sovereign fund, selling structures that its officials could not understand – he says: "It was very clear and evident that there was a breach in trust. They abused that confidence that was built, and the inexperience of individuals.

"I wouldn’t say it was a con job, but it was very near to it, where people were taken on holidays and bought gifts and things. The trust element was there and they totally took advantage of it and sold LIA complicated transactions with complicated documents that they couldn’t understand, at a moment when the whole world was going south, and they knew that."

Goldman Sachs, which has applied for summary dismissal of the case before trial, tells Euromoney: "We think the claims are without merit, and we will defend them vigorously."

The Société Générale case is less about mis-selling and more about over $58 million of payments the French bank made to a third party called Leinada, a Panama-registered vehicle owned by a man called Walid Al-Giahmi who was close to the Gaddafi regime – payments that the lawsuit describes as bribes.

"Then, SocGen did not disclose how much was being paid. They did not disclose the identity. It was like pulling teeth. Only months and months later we found out what was going on. SocGen itself was one of the prime banks in the world, at the forefront of derivatives trading. They bring in a party who is not even literate in financial affairs to advise them on structures and derivatives? Hard to understand."

The secret memo
Société Générale tells Euromoney the allegations are unsubstantiated and says it "works occasionally with financial intermediaries in countries where it does not have local teams in place".

A spokesman for Leinada told the Financial Times in March that "[the LIA] case is without merit".

One can’t fault the LIA for boldness, but some are puzzled that this claim should be heading for court at all. The LIA’s legal representatives in the cases are Enyo Law, specifically partner Simon Twigden, who is considered a lawyer of the highest calibre; but look what he and his client are up against: the most powerful bank in the US and all its Wall Street legal advisers (although, these being London-heard cases, both Goldman and Société Générale are being represented by Herbert Smith). Many observers think the Goldman litigation in particular has no realistic chance of success. Did the LIA try to negotiate first?