A costly legal battle between Goldman Sachs and the Libyan sovereign wealth fund could have more permanent repercussions for the global banking industry, experts have told CNBC.
The Libyan Investment Authority has accused Goldman of misleading it and taking advantage of its lack of financial knowledge to make "substantial" profits on a series of derivative trades back in 2008. The bank denies the allegations and a full hearing has been touted to begin in early 2016 after a preliminary hearing was completed earlier in the month.
The LIA claims 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. Court documents allege that Goldman made profits of $350 million and a witness statement from a lawyer working for the LIA claims that the usual disclaimers - called non-reliance agreements - were sent after the trades were made and were never signed.
Satyajit Das, an expert on financial derivatives and risk management, told CNBC via telephone that the case has the potential to get "extremely ugly".
"This could be messy for Goldman Sachs and for a whole range of other banks," he said, adding that this would bring up the issue of opaqueness with these sorts of trades.
"It could lead to an investigation into the selling practices at banks and the types of financial products they offer."
Beyond the prospect of an investigation, industry experts are also forecasting further regulation of the complex derivatives market.
Anat Admati, a professor of finance and economics at Stanford Graduate School of Business welcomed any new regulation in this space. Without commenting on this particular case, she said that investments in derivatives can be easily misunderstood by untrained investors.
"Regulation that reduced this opacity would be desirable by lowering the incidence of mis-selling and of bankers taking advantage of the their clients' lack of understanding," she told CNBC via email.
$710 trillion market
Derivatives have been blamed for accentuating the steep falls seen during the global financial market crash of 2008. They are complex financial products that even Goldman's lawyer admitted to when asking for more time to prepare before the full hearing in 2016.