Goldman Sachs sued for $1 billion by Libya wealth fund
Global investment bank Goldman Sachs stands accused of deliberately exploiting the sovereign wealth fund of Libya in order to make "substantial" profits of $350 million, according to a legal filing with London's high court seen by CNBC.
The Libyan Investment Authority (LIA), set up in 2006 to manage the country's oil wealth, claims that the bank knew of the fund's lack of financial expertise but encouraged it to enter a number of complex financial derivative transactions earning Goldman Sachs a "very large" premium.
A spokesperson for Goldman Sachs told CNBC that the claims were "without merit" and that it would defend them vigorously.
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The disputed derivative trades in early 2008 cost $1 billion, and carried a high degree of risk, but lost a substantial amount of value by the end of the year and expired "worthless" in 2011, the filing said. The LIA claims that it entered the transactions without understanding the clear nature of the trades and without the benefit of independent legal or financial advice.
"They were described as 'structured investments' or 'structured investments in listed equity stocks'," according to the LIA in the document seen by CNBC and first reported by Bloomberg. "The LIA entered into the relevant trade acting with Goldman's encouragement and under its influence."
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It's also claimed that a Goldman executive director, Youssef Kabbaj, who left the company in 2009, offered to establish a long-term relationship with the LIA. He trained the LIA's staff on how to use Bloomberg's terminal and gave the LIA employees training opportunities in London, it said. Goldman Sachs allegedly paid for corporate hospitality on these trips to London and paid "extensive expenses" for them on a similar trip to Morocco.
"Mr Kabbaj addressed the LIA employees as his 'friends' and his 'team', and made them feel that he was part of their 'team' (frequently bringing them small gifts, such as aftershaves and chocolates, when he visited Tripoli," the document said.
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In early 2008, Goldman also made arrangements for a brother of an LIA employee to be employed as an intern at both its London and Dubai offices, the filing claimed.
Libya's sovereign wealth fund, which is believed to have had a cash pile of $60 billion, was set up during the reign of Muammar Gaddafi. Gaddafi and his family gave suggestions for the selection of some of the board directors that took control of the nascent wealth fund in 2007.
Gaddafi was later deposed and killed in a 2011 coup and the legal claim is being lodged by Libya's new regime.
— CNBC.com's Matt Clinch. Follow him on Twitter @mattclinch81