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Goldman Sachs Bankers Threatened by Libya Executive in 'Tirade'

Tuesday, 07 Oct 2014 01:59 PM

A Libya Investment Authority executive threatened two Goldman Sachs Group Inc. bankers at a 2008 meeting in Tripoli, telling them the lender had “screwed” the sovereign wealth fund, according to the LIA’s evidence at a London court hearing Monday.

Former LIA executive Mustafa Zarti was so angry about bad investments that he cursed at the two bankers, Youssef Kabbaj and Nick Pentreath, in English and Arabic after questioning some of the fund’s 2008 trades with Goldman, according to Catherine McDougall, a lawyer at a London law firm who was temporarily assigned to the LIA at the time.

“Get out of my country,” McDougall recalled Zarti as saying in a witness statement she prepared for the LIA in a $1 billion lawsuit against Goldman. The bankers gathered their things and left quickly, she said.

Libya’s sovereign wealth fund sued Goldman Sachs over money-losing investments made in 2008, saying the bank exploited the LIA’s inexperience to sell risky derivatives. The case is the largest of dozens of U.K. lawsuits against multiple lenders where bank clients from German water providers to Italian regions say they were sold unsuitable financial products.

Zarti “launched into a very angry tirade, saying that he had a bad side as well as a good side and that he could come after their families,” McDougall said in the statement.

$60 Billion Fund

The $60 billion fund, established under former Libyan ruler Muammar Qaddafi, grew to be Africa’s second-largest sovereign wealth fund by the time he was deposed and killed in 2011. Some of the firm’s investments proved disastrous, leading to attempts to restructure deals, regulatory investigations and multi-billion dollar lawsuits.

Kabbaj, who has since left Goldman Sachs, and Zarti’s spokesman didn’t immediately respond to e-mails seeking comment on the meeting. McDougall declined to comment through a spokesman for the LIA.

McDougall was recalled from Libya in August 2008 after she was told by her law firm, Allen & Overy LLP, that the LIA had made a complaint about her. She resigned the same month without any disciplinary action being taken, and said in her witness statement “I felt quite traumatized by the experience.”

A number for Pentreath, who left Goldman Sachs in 2009 according to online records at the Financial Conduct Authority, couldn’t be immediately located. Jo Carss, a spokeswoman for Goldman Sachs, declined to immediately comment in an e-mail.

The two Goldman bankers tried to calm Zarti down before they left, McDougall said.

In This Together

“Mr. Kabbaj said that Goldman wanted a long-term relationship with the LIA, that it was not going to make any more money than the LIA on the disputed trades and that Goldman and the LIA were ‘in this together,’” she said.

This week’s hearing is the first in the case that was filed in January. The LIA asked to schedule the lawsuit for a 30-day trial in January 2016.

Judge Vivien Rose Tuesday ordered Goldman to pay 200,000 pounds ($322,000) of the LIA’s legal fees from the bank’s bid to have the case thrown out. Goldman abandoned the attempt in August.

Details about a Securities and Exchange Commission investigation into Goldman’s dealings with the LIA also emerged at the hearing.

Witness Statement

Edward Allen, a U.K. lawyer for the LIA in the case, said the SEC had told him its probe was focused on “whether corrupt payments were made to third parties by GSI [Goldman] in connection with investments made by the LIA,” according to his witness statement. He said the SEC had obtained a “significant number of documents” from the bank.

McDougall, the lawyer who was seconded to the LIA in 2008, was “shocked” by the fund’s inappropriate relationship with Goldman Sachs, according her statement.

“The line between friendship and arms-length commercial dealings had clearly been blurred,” said McDougall.

She said LIA employees told her about a “lavish” trip to Morocco and that “there was heavy drinking and girls involved,” paid for by a Goldman Sachs banker on his company credit card. “I was shocked by all of this and a number of red flags were being raised in my mind,” McDougall said in the witness statement.

Trust ‘Misplaced’

Roger Masefield, a lawyer for the LIA, told the judge at the hearing that the fund didn’t understand that it was investing in derivatives instead of shares, and wasn’t aware it was in a position to negotiate better terms for the trades.

“Their trust was misplaced,” he said.

The LIA’s allegations about corporate hospitality are “tittle tattle” and “incredibly thin,” said Robert Miles, a lawyer for the bank, at the hearing. Goldman said in its court documents that McDougall arrived at the LIA after the disputed trades had been agreed on.

The New York-based bank also said in its court documents that the lawsuit is a “paradigm of buyer’s remorse.”

The LIA “freely entered into commercial bargains which have turned out badly for it,” Goldman Sachs said. The fund’s “vague and generalized allegations of a relationship of ‘trust and confidence,’” are “utterly unconvincing,” the bank said.

Even if they are accepted, the LIA’s allegations fall “well short of impropriety,” Goldman Sachs said.

Personal Relationships

The LIA said the bank tried to forge personal relationships with fund officials. Goldman Sachs offered an internship to Zarti’s brother in 2008, according to the LIA’s documents.

LIA lawyer Allen said in his witness statement the SEC told him that Goldman may have breached its own compliance rules by offering the post.

The internship lasted about a year, according to Zarti’s personal spokesman, Werner Beninger. “This was unrelated to LIA and its business,” Beninger said in a statement.

Judge Rose asked the LIA’s lawyers Monday to be clearer about what they were alleging against the bank. She said there was “a lack of clarity as to whether there is an allegation that the generous hospitality that was offered in Morocco and what happened in relation to Mr. Zarti was improper in some way and, if so, in what way.”

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A Libya Investment Authority executive threatened two Goldman Sachs Group Inc. bankers at a 2008 meeting in Tripoli, telling them the lender had "screwed" the sovereign wealth fund, according to the LIA's evidence at a London court hearing.
Goldman Sachs, Libya, investment, bank
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2014-59-07
Tuesday, 07 Oct 2014 01:59 PM
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