Goldman Sachs abused trust in dealings with Libyan LIA, fund’s lawyer tells trial

By Claire Milhench

LONDON (Reuters) – Goldman Sachs abused its position as a trusted adviser to Libya’s sovereign wealth fund, a lawyer for the fund argued on Tuesday, in a case that has subjected the bank’s dealings to a forensic degree of scrutiny.

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 in relation to nine disputed trades carried out in 2008, arguing that the trades were secured through “undue influence” and “unconscionable bargaining”.

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

In his closing statement for the LIA, lawyer Roger Masefield said that in the autumn of 2007, the bank had stepped into a gap created by the resignation of the LIA’s independent financial consultant, and cultivated a relationship of trust.

He said this went beyond a “normal arm’s length banker-client relationship” as the bank had assumed the role of an adviser.

In doing so, it was not allowed to transact with its client to its own material advantage unless either it told the client to consult with an independent adviser on such transactions, or otherwise described the risks in a fair and accurate manner, he said.

“But if the bank doesn’t do that, in circumstances where de facto it has crossed the line and started giving advice, then it stands at risk,” he said.

In circumstances where the client proceeds and the risk hasn’t been fairly described to it, the LIA can rescind and set aside the trade, he added.

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 have always disputed the LIA’s claim that it was financially illiterate and it is clear that they understood the disputed trades and entered into them of their own volition,” the bank said in a statement released on Tuesday.

In its written closing submission, seen by Reuters, Goldman Sachs argues that it was only one of dozens of banks and financial institutions that the LIA was dealing with, and the amounts invested with Goldman were only a fraction of the total investments the LIA made at the time.

In the submission Goldman argued that, rather than being financially naive, the LIA had simply failed to predict the full extent of the global financial crisis.

A lawyer for Goldman Sachs is expected to deliver the bank’s oral closing argument later in the week.

(Editing by Pravin Char)