Libya’s claim against Goldman Sachs supported by Securities and Exchange Commission

An investment fund in Libya known as the Libyan Investment Authority (LIA) alleges that Goldman Sachs put the fund in over $1 Billion worth of high risk losing trades so Goldman managers could earn $350 million in fees. Goldman has admitted in court documents that it bribed officials working for Libya’s sovereign wealth fund but the claim brought by Libya about the fraud by Goldman is contested and Goldman denies the charges.

Libya has some unlikely allies as court documents show that an official with the SEC supports Libya’s claim against Goldman.

The SEC conducted its own investigation as to how Goldman Sachs obtained business from the Gaddafi regime to manage money for LIA and has sided more with LIA’s claims of undue influence.

Goldman says LIA is suffering from “buyer’s remorse” and has denied the charge of undue influence even though some of the “gifts” it admitted to giving Libyan officials in court documents may mean the bank violated the Foreign Corrupt Practices Act.

In 2007, Goldman made a presentation to the LIA explaining that it wanted to establish a “partnership” with the sovereign fund, the suit says. The bank offered to train authority employees and senior managers about the financial markets and products, offering it strategic long-term advice and investment options.

Bu the LIA says that Goldman had exercised undue influence over the fund, including lavish entertainment in Morocco and London that featured “heavy drinking and girls” and the awarding of a coveted Goldman internship to the brother of the deputy head of the authority, a violation of Goldman’s own compliance rules, one witness statement said.

Goldman says now that the authority’s case was “a paradigm of buyer’s remorse,” court documents say. “The parties knew very well that the payouts under the trades depended on the markets and unfortunately, late 2008 saw the credit crunch and ensuing financial crisis.” A lawyer representing Goldman, Robert Miles, called allegations about lavish entertainment “tittle-tattle” and the notion that a relationship of “trust and confidence” was breached “utterly unconvincing.”

Goldman said that it has documents showing that not only did the authority understand the trades, but it also gave opinions on proposals, sought price quotes on various alternative transaction structures and “ultimately selected the stocks, and the form of each transaction which it wished to enter into.”

Stay tuned.

Jeffrey Newman represents whistleblowers