Goldman compliance head queried internship in Libya fund case, court told

By Claire Milhench

LONDON (Reuters) – A Goldman Sachs compliance chief raised concerns about an internship the bank provided for the brother of a decision-maker at Libya’s sovereign wealth fund, a court heard on Tuesday.

In a trial at London’s High Court, the Libyan Investment Authority (LIA) is attempting to claw back $1.2 billion from the Wall Street giant from nine disputed trades carried out in 2008.

The LIA argues the U.S. bank took advantage of its financial naivety by first gaining its trust, then encouraging it to make risky and ultimately worthless investments.

It cites an internship Goldman Sachs provided for Haitem Zarti, the younger brother of Mustafa Zarti, the LIA’s former deputy chief.

The LIA says a special internship was created for Haitem as he was considered unsuitable for the bank’s regular program, where applicants undergo a rigorous assessment process.

Andrea Vella, who was a partner at Goldman Sachs at the time and is now co-head of investment banking for Goldman’s Asia ex-Japan operations, took the younger Zarti on to his team.

In a July 23, 2008 email exchange seen by the court on Tuesday, James Peters, the head of compliance for the investment banking division in Europe, on learning of this, asked Andrea Vella to come to him first in the future on what he called “client placements”.

“We always do everything we can to avoid them anywhere in IBD – they raise multiple issues,” he said.

Vella responded by email: “He’s not a client, he’s the brother of a client, but I see the point.”

Under cross-examination by Philip Edey, a lawyer acting for the LIA, Vella denied the main reason for offering the internship was to win more business from Mustafa Zarti.

He said it was offered partly on the understanding that Haitem would later assume a senior position within the LIA.

RELATIONSHIP

“It would be a great opportunity to be in front of him,” he said, giving testimony on Tuesday. “If you spend time with someone … when they have that job responsibility, and they have personal relationships with people in the firm, you are more likely to do business.”

The court was also shown an April 7 email from Youssef Kabbaj, a former Goldman Sachs sales team executive, to Mary Avery, an employee in human resources, requesting that Haitem be considered for an internship.

“Haitem has been referred to us by the Libyan Investment Authority, one of our strategic accounts in the MENA region that has produced this year almost $l00m in revenues,” he said.

Goldman Sachs, which denies all the allegations, maintains that its relationship with the LIA was at all “material times an arm’s length one” between banker and client.

“We do not believe the internship influenced in any way the LIA’s decision to enter into the trades,” the bank has said in a statement. It did not immediately respond to a request for further comment on Tuesday.

Edey also questioned Vella about the nature of the relationship between Kabbaj and Haitem Zarti. Kabbaj took Haitem on several overseas trips and, the LIA has said, arranged for two prostitutes to spend an evening with them on one occasion, according to texts already seen by the court.

Edey put it to Vella that this was not an arm’s length banking relationship.

“It appears to be a personal relationship,” Vella said. “It is a bit surprising that all this time is being spent between the two of them together … It is peculiar.”

Kabbaj has denied that he paid for “improper entertainment” on a business trip. He is not being called as a witness as he remains bound by a “very strong confidentiality agreement”.

The case is expected to conclude at the end of July.

(Editing by Janet Lawrence)