(GIN)—Over a four-month period, complex and unsuitable trades made by Goldman Sachs bankers ate up nearly the entire investment of a Libyan sovereign wealth fund, an amount Libya is suing to recoup, according to a case now before a U.K. high court.
The fund, set up under the regime of Moammar Gaddafi, was intended to invest the country’s oil wealth just as sanctions against it were being lifted. Because of the fund’s limited experience with so-called jumbo and elephant trades, unwise trades nearly bankrupted the fund.
Goldman Sachs, on the other hand, reaped huge profits from only nine trades, including one larger than the bank had undertaken in a single stock, earning more than $200 million for the company, it was alleged.
“We believe there was substantial overcharging … and they were taking advantage of my client’s naivete,” said Libya’s attorney Roger Masefield.
More than a billion dollars is being sought by the Libyans for the lost funds.
In the court hearing that opened today, Masefield expanded on the details of ethically questionable practices by the U.S. bank—picking up the tab for trips on private jets and stays at five-star hotels, business meetings on yachts, gifts and more to win the Libyan Investment Authority account.
Then there were holidays in Morocco for Libyan fund senior staff, arranged by a former Goldman staffer, according to documents in the hands of the court, where there were “heavy drinking and girls involved.”
Goldman Sachs staffers commented among themselves on the “zero-level” financial sophistication of the Libyan group. A pitch on structured leveraged loans was made “to someone who lives in the middle of the desert with his camels,” reported the Financial Times.
One Goldman partner wrote in 2008 that the LIA was “very unsophisticated, and anyone could ‘rape’ them,” the court was told by lawyer Masefield.
When the trades eventually went sour, an LIA executive, Mustafa Zarti, accused the Goldman staffer and the company itself of “tricking” them and “being a bank of mafiosa,” the court heard.
“The disputed trades were inherently unsuitable for a nascent sovereign wealth fund such as the LIA and Goldman Sachs knew (or at the very least suspected) that the LIA did not properly understand the trades, which were highly structured, complex and risky,” the lawyer for the Libyans alleged.
The case is one of “abuse of trust, undue influence and unconscionable bargain,” he said. “It most emphatically is not, therefore, as Goldman Sachs would have it, one of little more than ‘buyer’s remorse’—of a counter party who like many others lost money as a result of the market crash in 2008 and now wants to rewind the clock.”
The case is scheduled to run for seven weeks.