The Libyan Investment Authority’s (LIA) efforts to redress the wrongs it feels it suffered from western investment banks during the Gaddafi era have now drawn in Société Générale (SG).
After two claims in recent weeks that have embarrassed Goldman Sachs – one directly against it by the LIA, another peripherally linked to it by a former employee of Amsterdam-based fund management Palladyne – a new complaint in London’s High Court accuses SG and its subsidiaries of paying $58 million in questionable fees to a Panamanian company linked to the Gaddafi regime.
It also seeks more than $1.5 billion in relation to four trades and one restructured trade executed between 2007 and 2009 – a higher sum than the $1 billion that is being claimed from Goldman over disastrous equity derivative transactions.
|Muammar Gaddafi’s |
A central character in the SG matter is Walid Giahmi, a close friend of Saif. Giahmi was also closely linked to Elyes Jebali, who at the time was head of sales for structured investment for North Africa and Saudi Arabia at SG. Giahmi is also a defendant in the claim, as is a company called Leinada.
Leinada is one of those names that has been hovering around the story of the LIA for many years, without much clarity about what it was and how it was alleged to have behaved.
This claim sheds light on the institution: it is a Panama-incorporated company that was owned and controlled by Giahmi until it was dissolved in June 2010; it is alleged that Leinada received payments of at least $58.49 million from SG after a series of trades between 2007 and 2009.
The transactions were: a $300 million investment in Euro MTNs issued by SGA – an SG subsidiary – linked to a Permal fund in November 2007; a $1 billion investment in Euro MTNs issued by SG Option Europe and linked to the share price of SG itself, a deal known as SG Optimizer, in March 2008; two other SG-related investments totalling $800 million in May and October 2008; and a restructure of the SG Optimizer deal. All were sold to the LIA by Jebali. It is alleged that, after each of these, money was paid to Leinada sourced from the premium LIA paid SG for the trades.
“In fact,” the complaint says, “neither Leinada nor Mr Giahmi had provided any legitimate services to the SocGén defendants. Rather, the Leinada payments were made [with the intention of] influencing the LIA’s decision to enter into each and every one of the disputed trades through the payment of bribes, and/or the making of intimidatory threats, to representatives of the LIA.”
It adds: “Leinada was a Panamanian company, without an established pedigree, and with no discernible expertise in advising on or structuring financial derivative transactions.”
So there are two issues here. Firstly, the trades themselves were disastrous. The structures exposed the LIA to the performance of SG shares at the worst possible time: during their plunge in the financial crisis, and exacerbated by the fraudulent trading of Jérôme Kerviel.
The LIA describes the consequent losses as “significant” – apparently $1.5 billion – and wants them declared void or unenforceable, not on the grounds they were bad investments – and in this respect the claim differs from the Goldman one, in which the LIA claims it didn’t understand what was sold to it – but because the payments to Leinada show the whole sale was corrupt and fraudulent.
Second, there is the question of just what SG knew about Leinada. The claim says: “The SocGén defendants knew or at the very least suspected that the Leinada payments were made for fraudulent and corrupt purposes ... but chose not to make further enquiries.”
Someone who was close to the LIA at the time of the SG trades argues there are crucial differences between this and the Goldman claim. For a start, the SG trades, unlike the Goldman ones, are not believed to have expired, and indeed some SG investments did make money, although clearly the timing of the central SG Optimizer was disastrous.
This person believes the fees paid into Leinada were for the introduction made between SG and the LIA – a central issue in court will be to determine whether this constitutes a bribe or not.
In other respects the SG situation is worse than the Goldman one, since the claim alleges that substantial fees were paid by SG to Leinada, whereas Goldman is alleged only to have discussed a $50 million payment to Palladyne, rather than actually paying it.
This, in turn, brings the case into the realm of the SEC and US Department of Justice. While Goldman is the name that has attracted the most attention for being investigated in the US over its behaviour in Libya, it is not alone: others include the hedge fund Och-Ziff and, it has been reported, SG too.
The focus of the Justice department’s investigation is believed to be the role that fixers or intermediaries have paid – Palladyne in Goldman’s case – and clearly the role of Leinada, and what SG understood it to be, will be central to its investigations if it is looking into the French-owned bank.
SG responded to Euromoney: “The LIA’s allegations are unsubstantiated and Société Générale will defend these proceedings vigorously.
“Société Générale also wishes to make it clear that as far as it is aware, it is not under investigation by regulatory or law enforcement authorities in relation to its relationship with the LIA.
“Finally, Société Générale wishes to underline the fact that it works occasionally with financial intermediaries in countries where it does not have local teams in place. Such arrangements are systematically disclosed to the bank’s client, and are reviewed in detail by its compliance department.”