* Libyan Investment Authority (LIA) files law suit in London
* Says paid more than $1 bln for trades that ended worthless
* Says Goldman exerted undue influence by encouraging trades
* Goldman says claims without merit, to defend them strongly
By Clare Hutchison
LONDON, Jan 30 Goldman Sachs exploited a lack of
financial knowledge at Libya's sovereign wealth fund and a
position of trust when it encouraged the fund to invest more
than $1 billion in trades that ended up worthless, the fund has
claimed in court documents.
The Libyan Investment Authority (LIA) last week filed a law
suit against the U.S. investment bank in London's High Court,
seeking to cancel a series of equity derivatives trades between
January and April 2008 and the repayment of premiums paid to
Goldman Sachs for its services.
In court documents seen by Reuters on Thursday, the LIA said
Goldman took advantage of the fund's "financially illiterate"
staff, who had placed trust and confidence in the bank.
The LIA estimates Goldman made "substantial and unusually
high" profit of around $350 million on the trades, which expired
as worthless in 2011, the documents show.
A spokesperson for Goldman said: "We think the claims are
without merit, and will defend them vigorously."
The LIA became a Goldman client in August 2007, shortly
after it began operating. Under the partnership, Goldman offered
to train LIA staff in financial markets and products, alongside
giving strategic investment advice, according to the filing.
The relationship between the two became so close that a
Goldman executive addressed the LIA employees as his friends and
frequently gave them small gifts, such as aftershaves and
chocolates, the LIA said.
It was that executive who "heavily encouraged" the LIA to
obtain exposure to stocks, including shares in Citigroup
and EDF, on a leveraged basis by entering into a number
of large long-dated complex derivatives transactions, it said.
The LIA said Goldman failed to properly document these
trades, providing details only after they had been executed.
Only when it received those details did the LIA come to
understand that the trades were not cautious investments, but
rather "complex derivatives and synthetic instruments which
represented highly speculative gambles", it said.
In a statement accompanying the filing, AbdulMagid Breish,
Chairman of the LIA, described the transactions as "unjust".
"The unique circumstances allowed Goldman Sachs to take
advantage of the LIA's extremely limited financial and legal
experience, to deliberately exploit its position of influence,
and to take advantage in a way that generated colossal losses
for the LIA but substantial profits for Goldman Sachs," he said.
Goldman has just under two weeks to acknowledge service of
the legal proceedings.