Goldman Sachs took staff members of the Libyan sovereign wealth fund on an all-expenses paid trip to Morocco during the Gaddafi era to persuade them to invest in high-risk investments. The visit involved “heavy drinking and girls” according to an independent lawyer.
The Independent says the Libyan Investment Authority is accusing the bank of losing the state more than $1bn as a result of the investments.
The wife of pop star James Blunt has also been dragged into the case as she worked for the Libyan Investment Authority from their London offices at the time of the investment.
The Libyan legal team quoted her as saying that there was “a team of clearly naive and unqualified individuals… doing their best in the face of extremely intelligent, ambitious and experienced individuals.”
Allen & Overy lawyer Catherine McDougall, who was brought in on secondment to scrutinise the investments, said that the Libyan Investment Authority staff were clearly highly inexperienced and did not release their risky nature.
“I asked them where the due diligence was and they responded: ‘Due What?’ she said.
She added that staff “completely trusted” Goldman Sachs, especially top banker Youssef Kabbaj.
Saying that the relationship was inappropriate, she said: “They told me he was their very close friend. They told me about their lavish trip to Morocco and that there was heavy drinking and girls involved and that the trip was paid for by Youssef Kabbaj on his Goldman corporate credit card.
“They also told me how Mr Kabbaj would take them out in London for expensive nights out, again paid for on his Goldman Sachs credit card.”
“In short, I was shocked by what I learned…It was readily apparent to me that Goldman had unfairly taken advantage of the LIA’s lack of financial sophistication and the trust and confidence [of LIA’s staff].”
Goldman Sachs has responded by saying that the LIA did have some highly experienced bankers, and many of the complaints are just hindsight.
They say that the investments only went bad due to the global financial crisis, and had the potential to yield massive returns for the relatively small amount of capital.