A statement by attorney Catherine McDougall, who worked for the Allen & Overy law firm before being assigned to the LIA, claimed that the relationship between Goldman and the fund was too close and that the bank's employees had unfairly taken advantage of the LIA's lack of financial knowledge to sell it derivative products that it did not understand.
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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 LIA says.
A representative of Goldman Sachs told CNBC that the bank continues to believe this case is entirely without merit and intends to contest it vigorously as it moves through the legal process. The firm declined to comment further.
McDougall said she started her assignment in Libya shortly after the trades were made and quickly became surprised at the lack of knowledge and experience, especially with derivatives, that LIA employees had.
"They did not appreciate that the trades did not involve share purchases and they were completely synthetic products. I asked them where the due diligence was and they responded 'due what?' They said that they did not ask for any due diligence—there was no need to since Goldman had advised them to do these trades. They completely trusted Goldman," McDougall's witness statement said.
She said LIA employees had full confidence in Goldman executive director Youssef Kabbaj, who left the company in 2009.
"They told me about their lavish trip to Morocco and that there was heavy drinking and girls involved and that the trip was paid for by Youssef Kabbaj mostly on his Goldman corporate credit card," McDougall's statement said.
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"They also told me how Mr Kabbaj would take them out in London for expensive nights out, again paid for on his Goldman Sachs credit card. I thought that the level of closeness that Mr Kabbaj had built with the team seemed inappropriate and that the line between friendship and arm's length commercial dealings had clearly been blurred."
Kabbaj could not be immediately located for comment. His most recent employer Exotix, said he no longer worked there and didn't know his whereabouts.