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SEC Official Supports Libya’s Claim Against Goldman Sachs

Goldman Sachs.svg

Though Goldman Sachs has already admitted in court documents that it bribed officials working for Libya’s sovereign wealth fund, the claim brought by Libya concerning fraud remains contested. Libya’s sovereign wealth fund known as the Libyan Investment Authority (LIA) has accused Goldman Sachs of putting the fund in over $1 billion worth of high risk losing trades so Goldman could pocket $350 million in fees.

Goldman has denied the charges but Libya appears to have some unlikely allies as court documents reviewed by The Wall Street Journal show that an official with the SEC support’s 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 appears to have sided more with LIA’s claims of undue influence than Goldman’s more benign version of events.

Goldman said LIA is suffering from “buyer’s remorse” in court documents 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.

Edward Allen, a partner with the London law firm Enyo Law LLP advising the Libyan fund, said in a witness statement that he met SEC officials in Boston in December last year to discuss the sharing of documents relating to Goldman’s relationship with the fund. An SEC official working on the case told Mr. Allen that he thought the Libyan fund’s claim against Goldman was a “good one” and that he was aware of additional information to support the legal action, according to the statement. The SEC declined to comment.

Mr. Allen’s statement also said the SEC official had told him that Youssef Kabbaj, then a senior Goldman banker on the derivatives trades, had been “embedded” at the Libyan fund. In another witness statement, Catherine McDougall, a lawyer at Allen & Overy in London who was on assignment at the Libyan fund at the time of the derivatives trades, said that fund officials had been “completely in awe” of Mr. Kabbaj and did “no due diligence whatsoever” on the trades. “I asked them where the due diligence was and they responded ‘due what?’” Ms. McDougall said in the statement.

Due what? So much for professional financial services. If they haven’t heard of due diligence perhaps they are also unaware of conflict of interest. For example when an investment firm wants to put a client in risky trades not in the client’s interest because the firm makes money off of the fees regardless of how the trades work out and the client doesn’t object because it has members of that investment firm “embedded” within its organization.

In any case, it seems Goldman Sachs may be facing more penalties for ripping its clients off as the evidence piles up in the Libya case. Aren’t you glad you bailed them out? What a terrible world it would be had Goldman gone bust.

CommunityThe Bullpen

SEC Official Supports Libya’s Claim Against Goldman Sachs

Goldman Sachs.svg

Though Goldman Sachs has already admitted in court documents that it bribed officials working for Libya’s sovereign wealth fund, the claim brought by Libya concerning fraud remains contested. Libya’s sovereign wealth fund known as the Libyan Investment Authority (LIA) has accused Goldman Sachs of putting the fund in over $1 billion worth of high risk losing trades so Goldman could pocket $350 million in fees.

Goldman has denied the charges but Libya appears to have some unlikely allies as court documents reviewed by The Wall Street Journal show that an official with the SEC support’s 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 appears to have sided more with LIA’s claims of undue influence than Goldman’s more benign version of events.

Goldman said LIA is suffering from “buyer’s remorse” in court documents 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.

Edward Allen, a partner with the London law firm Enyo Law LLP advising the Libyan fund, said in a witness statement that he met SEC officials in Boston in December last year to discuss the sharing of documents relating to Goldman’s relationship with the fund. An SEC official working on the case told Mr. Allen that he thought the Libyan fund’s claim against Goldman was a “good one” and that he was aware of additional information to support the legal action, according to the statement. The SEC declined to comment.

Mr. Allen’s statement also said the SEC official had told him that Youssef Kabbaj, then a senior Goldman banker on the derivatives trades, had been “embedded” at the Libyan fund. In another witness statement, Catherine McDougall, a lawyer at Allen & Overy in London who was on assignment at the Libyan fund at the time of the derivatives trades, said that fund officials had been “completely in awe” of Mr. Kabbaj and did “no due diligence whatsoever” on the trades. “I asked them where the due diligence was and they responded ‘due what?’” Ms. McDougall said in the statement.

Due what? So much for professional financial services. If they haven’t heard of due diligence perhaps they are also unaware of conflict of interest. For example when an investment firm wants to put a client in risky trades not in the client’s interest because the firm makes money off of the fees regardless of how the trades work out and the client doesn’t object because it has members of that investment firm “embedded” within its organization.

In any case, it seems Goldman Sachs may be facing more penalties for ripping its clients off as the evidence piles up in the Libya case. Aren’t you glad you bailed them out? What a terrible world it would be had Goldman gone bust.

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Dan Wright

Dan Wright

Daniel Wright is a longtime blogger and currently writes for Shadowproof. He lives in New Jersey, by choice.