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Libya: LIA loses the Goldman case

Libyan Investment Authority fails to convince court US bank duped it; Société Générale case even bigger but LIA is rudderless.

In the end, staff at the Libyan Investment Authority (LIA) just weren’t stupid enough. That’s the central conclusion in the sovereign fund’s expensive loss of a $1.2 billion legal battle with Goldman Sachs in London’s High Court in October.

AbdulMagid Breish-160x186

AbdulMagid Breish

The case had alleged that Goldman had taken advantage of the lack of sophistication at the fledgling Libyan fund and sold it products whose risk profile the buyer did not understand, resulting in the total loss of $1.2 billion of capital while simultaneously earning the US bank an alleged $200 million.

The problem with this premise was that it required the LIA to prove that its staff in those early days were hopeless ingénues in wide-eyed thrall to the wisdom and abuse of Goldman bankers, and unable to understand what they were buying.

As Euromoney has reported before, this was profoundly irritating to some of the staff who were there at the time, many of them alumni of leading western institutions, and in the end it was a bridge too far.

“The contemporaneous documents lead me to conclude they [the LIA] have exaggerated their lack of sophistication,” said Judge Vivien Rose. “I find that the LIA has greatly exaggerated the extent to which senior and junior personnel were naïve and unworldly about the nature of the dynamics of their relationship with Goldman Sachs.”

This is no great surprise, probably not even to the LIA’s management, and one could detect in its statement afterwards a hint that the people in charge were not entirely sure it should have gone ahead.

“Today’s ruling will not break our resolve,” said Ali Mahmoud Hassan, president of the interim steering committee of the LIA. “We remain focused on the other litigations raised by the previous board of directors to put right the wrongs suffered elsewhere in the past.”

Although Goldman won its case, it does not come out of the High Court case smelling of roses.

During the trial the court heard allegations of Goldman bankers hiring prostitutes for executives and at no stage did Goldman deny having made enormous profits while losing the LIA everything it put into the investments Goldman itself recommended.

Also brought up were princeling connections more commonly associated with 1990s China, with the brother of an LIA executive being offered an internship at Goldman, despite having only previously run a video club.

SocGén next

Attention now turns to the next LIA litigation, against Société Générale, due to be heard on April 25.

It’s clear from Hassan’s statement that the case will go ahead and lawyers familiar with the case have argued that the SocGén complaint is the stronger of the two.

The crucial distinction is that while the Goldman case rested upon the LIA proving it did not know what it was buying, the SocGén one rests upon proving that the sale of products to the LIA was corrupt and fraudulent. The French bank contests the case.

Euromoney has seen a copy of the complaint and at its heart is the payment of $58 million in fees to Leinada, a Panamanian company linked to the Gaddafi regime, and in particular Walid Giahmi, a close friend of Saif Gaddafi.

Leinada received the payments from SocGén after a series of trades between 2007 and 2009, several of which went disastrously wrong and cost the LIA $1.5 billion, even more than the Goldman mess.

The complaint says “neither Leinada nor Mr Giahmi had provided any legitimate services” to SocGén and that instead the payments were for “influencing the LIA’s decision to enter into” the trades “through the payment of bribes, and/or the making of intimidatory threats, to representatives of the LIA”.

The SocGén case promises much of the same embarrassing derring-do as Goldman’s. In pre-trial hearings in July, court filings were filled with references to code words, from Zorro and The Fridge to The Doctor, Biscuit and Pizza. Parts of it resemble a John le Carré novel.

Meanwhile, the LIA faces the same problems that have dogged it for years. With the leadership of the fund still disputed between AbdulMagid Breish in Tripoli, Fawzi Omran Farkash in Tobruk and – until his resignation in August after being held under house arrest in Benghazi – Hassan Bouhadi in Malta, it is instead now run by an interim steering committee that is itself the subject of a legal challenge by Breish.

The funds are largely frozen by the UN – as they have been for five years – and on the day of the Goldman ruling in London, a coup attempted to push out the new unity government in Tripoli.

The LIA has $67 billion in assets, but is no closer to being able to do anything with them than it was when Gaddafi senior died in 2011.

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