Goldman Sachs to face Libya in revealing London High Court trial

The Libyan Investment Authority claims that Goldman Sachs exploited the sovereign wealth fund’s limited financial experience, forcing it into risky and lossmaking derivative trades.

The investment bank denies all the allegations (AP)

Libya’s sovereign wealth fund will go head-to-head with Goldman Sachs in London's High Court over claims that the US investment bank exploited the fund by encouraging it to make risky and ultimately worthless investments.

In what will be one of the most closely watched cases in the City of London this week, the $67bn (£47bn) Libyan Investment Authority (LIA) is attempting to claw back $1.2 billion from the Wall Street giant from nine disputed trades carried out in 2008.

The LIA's claim hinges in part on its allegations that the trades were procured under “undue influence”.

It specifically cites an internship that Goldman Sachs provided for Haitem Zarti, the brother of Mustafa Zarti, the LIA's former deputy chief. Neither of the Zarti brothers are connected with the fund now.

Reuters could not reach either of the brothers for comment.

Goldman Sachs, which denies all the allegations, maintains that its relationship with the LIA was “an arm's length one” between banker and client, and that the trades in question “were not difficult to understand”.

“The claims are without merit and we will continue to defend them vigorously,” the bank said in an emailed statement last week.

The case is expected to shine a light on the way some of the world's biggest investment banks conducted business with Colonel Muammar Gaddafi's regime, doing deals that generated large fees, but which the Libyans say did little to benefit the oil-rich state's sovereign wealth fund.

Libya set up the LIA in 2006 with the aims of investing the large reserves accumulated from its oil revenues and integrating its economy into the international financial system after years of sanctions.

An internal quarterly LIA management report obtained by the anti-corruption campaign group Global Witness in 2011 suggested the fund had suffered heavy losses. One of the biggest was a 98.5 per cent fall in the value of the fund's $1.2 billion equity and currency derivatives portfolio.

The LIA is also pursuing the French investment bank Societe Generale for some $2.1 billion in relation to another set of trades entered into between 2007 and 2009. Societe Generale is contesting the case, which is expected to come to trial in January next year.

The business advisory firm BDO has been appointed by the court to manage the litigations on the LIA's behalf, as two rival chairmen are still laying claim to control of the LIA.

It was hoped this issue would be resolved with the formation of a UN-backed unity government for Libya, but this is still struggling to establish itself.

The Goldman Sachs case is scheduled to run for seven weeks.

Reuters