Back to top

Analyst Blog

Zacks Equity Research

Goldman in Hot Water? Libyan Fund May Appeal Ruling

CMA BK BAC GS

Trades from $3

The Goldman Sachs Group, Inc. (GS - Free Report) has been yet again accused by the Libyan Investment Authority (LIA) as the fund is intending to approach the UK Court of Appeal. The move comes after the Wall Street banking giant won the $1.2 billion suit last month over a series of derivatives transactions entered between LIA and Goldman in 2008.

According to a report by Reuters, at a hearing on Friday, Judge Vivien Rose did not grant permission to LIA for appealing her October judgment, wherein she had dismissed the case. However, citing a source familiar with the matter, the report stated that the sovereign fund now may seek permission from the Court of Appeal.

Citing a court filing, the report also stated that LIA’s appeal would be concentrated on its claim tied with four trades made in Apr 2008 and an internship offered by Goldman to Haitem Zarti – the younger brother of Mustafa Zarti – who served as the LIA's deputy chief.

Roger Masefield, a lawyer for the LIA said, “We say the offer of an internship was a bribe in civil law," adding further, "This was sufficient to create a real possibility of a conflict of interest in the mind of Mustafa Zarti."

In Brief

The LIA’s ties with Goldman have been strained after the series of derivatives transactions soured and ultimately lost $1.2 billion at maturity in 2011. Goldman was accused of exploiting its close relationship with the fund and influencing the LIA officials, who lacked financial expertise, to make risky and worthless derivative trades.

Notably, during the seven-week trial, Masefield had said that in order to convince the LIA to engage in the investments, Goldman had organized training programs for the LIA staff, showered gifts and took members of the fund on trips to Dubai, London and Morocco. According to the claims of the LIA, a former banker at Goldman, Youssef Kabbaj “was quickly embedded within the nascent institution." In 2008, he had aided in arranging an internship for Haitem Zarti.

One of the emails disclosed in the case, revealed that a Goldman partner had referred LIA as “very unsophisticated.” In another, 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, sought for recoupment for the losses incurred from the trades.

However, in Oct 2016, a London court ruled in favor of Goldman, in which Judge Rose noted that the nine disputed trades might have been termed as unsuitable for a sovereign wealth fund. They were similar to several other investments that the LIA made over the period.

Goldman’s Response

A London-based spokesman for Goldman stated that the appeal had no base, stating, "The judgment clearly established that the internship did not have a material influence on the decision of Mr Zarti and the LIA to enter into the April Trades.”

Notably, in the Friday court hearing, Goldman asked the judge to approve a payment of £10.5 million to cover legal costs of about £17.5 million from the trial. Judge Rose ordered the LIA to make the initial payment of £8.5 million pounds. The final amount will be decided later.

Goldman currently carries a Zacks Rank #2 (Buy).

Stocks that Warrant a Look

Bank of America Corp. (BAC - Free Report) : The Zacks Consensus Estimate for the current quarter moved upward by 5.6% to 38 cents per share over the last 30 days.

The Bank of New York Mellon Corp. (BK - Free Report) : Over the last 30 days, the Zacks Consensus Estimate for the current quarter moved north 5.5% to 77 cents.

Comerica Inc. (CMA - Free Report) : The Zacks Consensus Estimate for the current quarter increased 11.9% to 94 cents per share over the last 30 days.

Notably, all the three stocks carry a Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Confidential from Zacks

Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>