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Goldman's Tussle with Libyan Fund Escalates as Trial Begins
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In the much anticipated trial which began on Monday at London's High Court, The Goldman Sachs Group, Inc. (GS - Free Report) was accused by the Libyan Investment Authority (LIA) of exploiting its close relationship with the fund and influencing the LIA officials who lacked financial expertise, to make risky and worthless derivative trades.
In Brief
The case relates to a series of derivatives transactions entered by the LIA between Jan and Apr 2008, with Goldman. The sovereign fund’s ties with Goldman have been strained after those transactions soured and ultimately lost $1.2 billion at maturity in 2011.
In the trial, Roger Masefield a lawyer for the fund said that in order to convince LIA to engage in the investments, Goldman organized training programs for LIA staff, showered gifts and took members of the fund on trips to Dubai, London and Morocco.
According to the claims of LIA, a former banker at Goldman, Youssef Kabbaj “was quickly embedded within the nascent institution”. In 2008, he aided in arranging an internship for Haitem Zarti, the younger brother of Mustafa Zarti who served as the LIA's deputy chief. Allegedly, during a visit to Dubai in 2008 with Haitem Zarti, Kabbaj paid for “a pair of prostitutes to entertain them both.”
One of the emails disclosed in the case revealed that a Goldman partner referred LIA as “very unsophisticated”. In another mail, a Goldman executive wrote to a colleague, “you just delivered a pitch on structured leveraged loans to someone who lives in the middle of the desert with his camels.”
LIA which was established in 2006 to invest in Libya’s oil fields accused Goldman of abusing a relationship of trust and confidence and exerting undue influence over the LIA to earn more than $200 million. The fund, whose assets were valued at around $67 billion in 2012, is seeking recoupment for the losses incurred from the trades. Notably, the trial is expected to last around seven weeks.
Goldman’s Response
Goldman denies any wrongdoing in the dispute and its lawyers stated that the claims of LIA “are without merit and we will continue to defend them vigorously.”
The lawyers also said, “The credit crisis and its impact on global markets turned out to be far more prolonged than the LIA and the great majority of market participants had anticipated." They added, “The LIA was the victim of an unforeseen financial depression, not of any wrongdoing by” Goldman.
Bottom Line
While the outcome of the case is not clear, Goldman remains susceptible to any potential penalties which might hurt the company’s financials. Apart from its concerns related to the crisis period, Goldman faces tough macroeconomic challenges that continue to drag revenue growth.
Currently, Goldman carries a Zack Rank #3 (Hold). Some better-ranked stocks in the finance space include LPL Financial Holdings Inc. (LPLA - Free Report) , Cathay General Bancorp (CATY - Free Report) and First Bancorp (FBP - Free Report) , each sporting a Zacks Rank #1 (Strong Buy).
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Goldman's Tussle with Libyan Fund Escalates as Trial Begins
In the much anticipated trial which began on Monday at London's High Court, The Goldman Sachs Group, Inc. (GS - Free Report) was accused by the Libyan Investment Authority (LIA) of exploiting its close relationship with the fund and influencing the LIA officials who lacked financial expertise, to make risky and worthless derivative trades.
In Brief
The case relates to a series of derivatives transactions entered by the LIA between Jan and Apr 2008, with Goldman. The sovereign fund’s ties with Goldman have been strained after those transactions soured and ultimately lost $1.2 billion at maturity in 2011.
In the trial, Roger Masefield a lawyer for the fund said that in order to convince LIA to engage in the investments, Goldman organized training programs for LIA staff, showered gifts and took members of the fund on trips to Dubai, London and Morocco.
According to the claims of LIA, a former banker at Goldman, Youssef Kabbaj “was quickly embedded within the nascent institution”. In 2008, he aided in arranging an internship for Haitem Zarti, the younger brother of Mustafa Zarti who served as the LIA's deputy chief. Allegedly, during a visit to Dubai in 2008 with Haitem Zarti, Kabbaj paid for “a pair of prostitutes to entertain them both.”
One of the emails disclosed in the case revealed that a Goldman partner referred LIA as “very unsophisticated”. In another mail, a Goldman executive wrote to a colleague, “you just delivered a pitch on structured leveraged loans to someone who lives in the middle of the desert with his camels.”
LIA which was established in 2006 to invest in Libya’s oil fields accused Goldman of abusing a relationship of trust and confidence and exerting undue influence over the LIA to earn more than $200 million. The fund, whose assets were valued at around $67 billion in 2012, is seeking recoupment for the losses incurred from the trades. Notably, the trial is expected to last around seven weeks.
Goldman’s Response
Goldman denies any wrongdoing in the dispute and its lawyers stated that the claims of LIA “are without merit and we will continue to defend them vigorously.”
The lawyers also said, “The credit crisis and its impact on global markets turned out to be far more prolonged than the LIA and the great majority of market participants had anticipated." They added, “The LIA was the victim of an unforeseen financial depression, not of any wrongdoing by” Goldman.
Bottom Line
While the outcome of the case is not clear, Goldman remains susceptible to any potential penalties which might hurt the company’s financials. Apart from its concerns related to the crisis period, Goldman faces tough macroeconomic challenges that continue to drag revenue growth.
Currently, Goldman carries a Zack Rank #3 (Hold). Some better-ranked stocks in the finance space include LPL Financial Holdings Inc. (LPLA - Free Report) , Cathay General Bancorp (CATY - Free Report) and First Bancorp (FBP - Free Report) , each sporting a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>