LONDON (Reuters) - The outcome of a two-and-a-half-year legal battle between Goldman Sachs and Libya’s $67 billion sovereign fund is a triumph for the Wall Street giant, which was vindicated despite embarrassing revelations about how some of its bankers conducted business.

A sign is displayed in the reception of Goldman Sachs in Sydney, Australia, May 18, 2016. REUTERS/David Gray/File Photo

The London High Court found in favor of Goldman Sachs on Friday, with Judge Vivien Rose dismissing the fund’s arguments, made over the course of a bruising seven-week trial.

While the Libyan Investment Authority (LIA) is likely to appeal, according to a source with knowledge of the matter, the lurid details spilling out of the case mesmerized observers because of the profile of the parties involved and the glimpse they offered into the secretive world of multi-billion-dollar sovereign wealth fund (SWF) investments.

The dispute centered on the $1.2 billion the LIA paid to Goldman to invest in nine equity derivatives trades, all of which ultimately turned out to be worthless.

In the course of the trial, observers were treated to tales of lavish hospitality involving soccer matches, nightclubs, London West End musicals, and in one instance prostitutes.

At stake was access to some of the $35 billion that the LIA had available to invest as Libya emerged from political isolation. Not surprisingly, it quickly became a magnet for foreign banks and fund managers.

One witness appearing for the fund, Ali Baruni, who was acting as an adviser for the LIA at the time, described a July 2007 meeting with Goldman Sachs at which he was “inundated” by the potential investments presented to him.

But Goldman Sachs was not alone in courting the fund. In the first two years of its life, the LIA invested heavily in alternatives such as private equity, hedge funds and mezzanine debt, including structured derivatives, according to a report prepared by LIA’s expert witness on suitability.

Judge Rose noted this in her ruling, saying that although the nine disputed trades may have been regarded as unsuitable for a SWF, they were no different in that regard from many other investments that the LIA made over the period.

She said LIA managers had been tasked with generating a much higher return than they could hope to make on plain vanilla trades - offering a potential explanation for their choice of speculative investments.

Goldman had also asserted in its court filings that the LIA was under political and internal pressure to make large investments in order to generate returns quickly. It argued that “an unforeseen financial depression” caused the losses, not any wrongdoing by the bank, and it was simply a case of “buyer’s remorse”.

BONE OF CONTENTION

A key bone of contention at trial was whether the fund’s employees actually understood what they were investing in. Although lawyers for the LIA argued that Goldman Sachs had taken advantage of the fund’s lack of sophistication, Judge Rose said the LIA had greatly exaggerated the naivety of its staff.

The LIA made much of the fact that Goldman had wined and dined its employees, plying them with gifts such as iPods, as well as offering a prestigious internship to Haitem Zarti, the younger brother of Mustafa Zarti, a key decision-maker at the fund.

The provision of such highly sought-after internships has come under scrutiny by U.S. regulators since 2008 as part of broader moves to shine a light on how banks go about securing business in less transparent emerging markets.

But Judge Rose said she did not think the internship had a material influence on Mustafa Zarti’s decision to enter into trades with Goldman Sachs. She also ruled that the main motivation behind the offer was the bank’s belief Haitem might be chosen to lead the LIA’s new office in London.

Even the salacious details relating to how former Goldman Sachs sales executive Youssef Kabbaj went about building a close relationship with the LIA were given short shrift by the judge.

The LIA had alleged that Kabbaj flew Haitem Zarti from Morocco to Dubai at Goldman Sachs’ expense, paid for accommodation at a five-star hotel and arranged for two prostitutes to spend the evening with them at a cost of $600.

Kabbaj, who did not appear as a witness, and remains bound by a strict confidentiality agreement with Goldman, denied paying for “improper entertainment”.

Judge Rose said that whilst the extent of the entertainment offered by Kabbaj to Haitem was “inappropriate, and in flagrant breach of Goldman Sachs’ policy on entertaining clients”, it was not relevant.

GOING THE EXTRA MILE

The LIA argued that the trades were secured through “undue influence” and “unconscionable bargaining”. This meant the LIA had to show it had only entered into the trades because it was shorn of the ability to make free and independent decisions, and that the terms of the transactions were “overreaching and oppressive”.

To this end, lawyers argued that Goldman had “crossed the line” and abused its position as a trusted adviser to the fund.

Goldman contended that it was always clear the two were dealing with each other as commercial counterparties, and that it had maintained an arm’s length relationship with its client.

Once again, Judge Rose found in favor of Goldman: “The fact that Goldman Sachs were prepared to go an extra mile when competing for this business by installing Mr Kabbaj in Tripoli to help the LIA does not mean that they were in a different relationship from the relationship that existed between the LIA and its other counterparties,” she said.

The relationship came to a head at a stormy meeting at the LIA’s offices on July 23, 2008, in which Mustafa Zarti, the fund’s then deputy chief, swore at Goldman’s representatives and threatened to “come after their families”, a witness, Catherine McDougall, told the court.

According to a witness statement by McDougall, a former Allen & Overy lawyer who was seconded to the LIA in July 2008: “His curses were along the lines of ‘fuck your mother, fuck you and get out of my country’.”

Zarti’s explosive rage was corroborated by Kabbaj’s report of the same meeting, as related in a letter seen by the court.

Kabbaj said Zarti had called Goldman Sachs “a bank of Mafiosi”, that Goldman had lied to him, and that when someone behaved like a bandit with him, he could “become himself a bandit”.

But Judge Rose said there was something “stage managed” about this stormy meeting. “The meeting seems to have been conducted so as to have maximum impact by turning on a dime from ‘chit chat’ to explosive and frightening abuse,” she said.

Goldman described Friday’s ruling as “a comprehensive judgment in our favor”, while the LIA expressed its disappointment and said all options were being considered.

The fund is potentially an important source of finance for rebuilding Libya after years of war and chaos, but some of its assets have been under U.N. sanctions since the overthrow of ruler Muammar Gaddafi in 2011. A power struggle over the fund is still raging.

The LIA is also pursuing French investment bank Societe Generale for some $2.1 billion in relation to trades entered into between 2007 and 2009. SocGen is contesting the case, which is only expected to come to trial in April 2017.</s>The Libyan Investment Authority (LIA) was attempting to claw back the $1.2 billion from the Wall Street giant in relation to nine equity derivatives investments carried out in 2008, which turned out to be worthless.

In the trial, which ran for seven weeks in London's High Court in the summer, the LIA argued that Goldman exercised "undue influence" and "unconscionable bargaining" to get it to enter the trades, asserting that the terms of the transactions were "overreaching and oppressive", as defined by English law.

The LIA claimed it was too unsophisticated to understand what it was buying, and that Goldman had abused its position as a trusted adviser. The trades were made two years after the LIA was set up to invest the country's oil wealth.

But in her 120-page judgment, seen by Reuters, Judge Vivien Rose dismissed these claims.

She said that having considered all the evidence: "I find that the LIA has greatly exaggerated the extent to which senior and junior personnel were naïve and unworldly about the nature of the dynamics of their relationship with Goldman Sachs."

In fact, the key decision-makers understood the trades and the risks, and they were consistent with the fund's need to get invested quickly, she said.

"The LIA management were tasked with generating a much higher return than they could hope to make on plain vanilla trades," she said. "This explains why they were prepared to enter into the speculative disputed trades even though this might appear to conflict with the long-term growth objectives of the LIA as a SWF."

Responding to the judgment, Goldman Sachs said it was pleased to win the case, "with a comprehensive judgment in our favor".

The LIA said it was "naturally disappointed" and added in a statement: "Time will be needed fully to digest the judgment and all options are being considered at this time."

While lawyers for the LIA declined to comment, a source with knowledge of the matter told Reuters: "I would be very surprised if there wasn't an appeal."

Goldman Sachs had disputed the LIA's claim that the wealth fund was financially naive, saying that "an unforeseen financial depression" had caused the losses, not any wrongdoing by the bank.

It had also maintained that its relationship with the LIA was an arm's length one between banker and client.

The LIA's lawyers had argued in court that Goldman Sachs had gained the trust of fund executives by providing lavish hospitality and gifts as well as a prestigious internship offered to Haitem Zarti, the younger brother of Mustafa Zarti, a key LIA decision-maker at the time.

But the judge found that the main motivation behind the offer was the bank's belief the younger Zarti might be chosen to lead the LIA's new office in London.

Whilst this may have contributed to a "friendly and productive atmosphere" during negotiation over several trades, it did not have a material influence on the LIA's decision to go ahead with these, she added.

She disagreed that the hospitality went beyond what was provided by other banks, citing in particular documents presented by Goldman to the court which showed tickets to top sporting events were provided by another bank to LIA officials.

The judge also found there were no grounds for concluding that profits earned by Goldman Sachs on the disputed trades were excessive.

The LIA is also pursuing the French investment bank Societe Generale for some $2.1 billion in relation to another set of trades entered into between 2007 and 2009. SocGen is contesting the case, which is only expected to come to trial in April 2017.</s>Goldman Sachs has won a $1bn lawsuit brought against it by the Libyan Investment Authority (LIA) in a high profile legal case.



 A High Court judge said on Friday that she had dismissed the LIA’s case that the wealth fund was subject to undue influence by Goldman Sachs by entering into nine disputed trades.

The ruling comes after a hard fought High Court trial in which it was claimed Goldman exploited the LIA’s limited financial experience and in which the court heard details of Goldman bankers trying to get close to LIA officials to win lucrative business from the sovereign wealth fund by offering lavish corporate hospitality – and in one case procuring prostitutes.

The LIA case revolved around claims that it was a fledging wealth fund and was forced by Goldman into risky derivative trades in which the US bank made $200m in profits but the LIA lost its entire $1.2bn investment.

The bank denied this and claimed the LIA was suffering from a classic case of “buyer’s remorse”.

The wealth fund focused on the activities of an ambitious Goldman banker and would-be rainmaker named Youssef Kabbaj and his attempt to cement Goldman’s relationship with the Libyan sovereign wealth fund which had been set up by Colonel Gadaffi with $65bn of assets.

The LIA claimed in court that Mr Kabbaj procured prostitutes and that Goldman paid for staff from the LIA to stay in five-star London hotels as well as offering them tickets to Champions League football games and to musical productions of Chicago and Lord of the Rings.

The LIA also claimed Mr Kabbaj “crossed the line” in deliberately blurring “professional and personal relationships” in locations ranging from Tripoli and Dubai.

It heard claims that Haitem Zarti, the brother of an LIA executive who previously run nothing more substantial than a video club, was flown business class to Dubai and out up at the five star Ritz Carlton hotel in Dubai to attend a Goldman conference and he was later offered a prestigious 11-month internship at Goldman in the bank’s hope that he would one day become an important LIA official, the court heard in the trial.

Mrs Justice Rose ruled that an internship offered to Haitem Zarti by Goldman was done so in the belief that he would occupy a senior position in the LIA and that the internship did not influence the LIA into entering the disputed trades.

She found that Goldman did not exercise undue influence on the LIA and the wealth fund had their own reasons for doing the deals. Goldman did not make “excessive” profits on the deals, she added.

The LIA said in a statement:</s>The Libyan Investment Authority (LIA) was attempting to claw back $1.2 billion from the Wall Street giant in relation to nine equity derivatives trades carried out in 2008, which expired worthless.

The LIA said it was "naturally disappointed" with the judgment handed down by Judge Vivien Rose. "Time will be needed fully to digest the judgment and all options are being considered at this time," it said in a statement.

While lawyers for the LIA declined to comment, a source with knowledge of the matter told Reuters: "I would be very surprised if there wasn't an appeal."

In the trial, which ran for seven weeks in London's High Court in the summer, the LIA argued that trades were secured through "undue influence" and "unconscionable bargaining."

It claimed that it was too unsophisticated to understand what it was buying, and that Goldman had abused its position as a trusted adviser.

Goldman Sachs disputed the LIA's claim that the wealth fund was financially naive, saying that "an unforeseen financial depression" had caused the losses, not any wrongdoing by the bank.

It also maintained that its relationship with the LIA was at all "material times an arm's length one" between banker and client.

The LIA is also pursuing the French investment bank Societe Generale for some $2.1 billion in relation to another set of trades entered into between 2007 and 2009. SocGen is contesting the case, which is only expected to come to trial in April 2017.</s>Three of Hillary Clinton’s paid speeches to Goldman Sachs were released Saturday by WikiLeaks, casting an awkward spotlight on the Democrat’s ties to the biggest players on Wall Street in the final stretch of the White House race.

Clinton’s campaign did not contest the authenticity of the remarks, which were part of a huge trove of documents hacked from the emails of campaign chairman John Podesta by WikiLeaks.

The campaign has blamed the Russian government for the hacks, a view shared by the US government, and accused the anti-secrecy website of seeking to help Clinton’s Republican rival for the presidency Donald Trump.

Among other issues, Clinton is shown in the speeches offering opinions on financial regulations, relations with Russian President Vladimir Putin and the negative effects of previous WikiLeaks releases on US foreign policy.

Clinton’s remarks are not dramatically out of step with her public remarks on the same issues, though they may read as a bit more forthright in style.

In her October 2013 address to Goldman Sachs, she suggested something had to be done to rein in Wall Street abuses “for political reasons.”

“There was also a need to do something because for political reasons, if you were an elected member of Congress and people in your constituency were losing jobs and shutting businesses and everybody in the press is saying it’s all the fault of Wall Street, you can’t sit idly by and do nothing,” Clinton said.

Clinton made the paid speeches to the financial giant between the time she left her position as secretary of state and started her White House bid.

Her record of delivering speeches for Goldman Sachs was a campaign staple for her Democratic primary rival Senator Bernie Sanders of Vermont, who argued that she could not be relied upon to regulate firms by which she has been paid.

Her White House rival Trump has scrambled to try to use the hacked emails against her, notably accusing Clinton aides of improperly securing inside information from the Obama administration about the investigation into her use of a private email server as secretary of state.

He has also seized heavily on other documents recently released by WikiLeaks, showing that Clinton, in private speeches to major banks in 2013 and 2014, expressed views in favor of free trade and Wall Street self-regulation that are at odds with her positions as a candidate.</s>White Plains, New York (CNN) WikiLeaks released Saturday what appear to be transcripts of Hillary Clinton's three paid speeches to financial heavyweight Goldman Sachs.

The remarks, which were hacked as part of an extensive breach of Clinton campaign chairman John Podesta's email account, show Clinton commenting on Wall Street's role in financial regulations, relations with Russian President Vladimir Putin and the damage done to US foreign policy by past WikiLeaks releases.

The Clinton campaign declined to confirm the authenticity of any of the transcripts and CNN cannot independently confirm their authenticity. But the campaign has not challenged any emails in other WikiLeaks releases and this is the second time transcripts from Clinton's paid speeches have been made public by the group.

Clinton's campaign compared the WikiLeaks hack to Watergate, the scandal that lead to the resignation of President Richard Nixon.

"There is no getting around it: Donald Trump is cheering on a Russian attempt to influence our election through a crime reminiscent of Watergate but on a more massive scale," Glen Caplin, a Clinton campaign spokesman, said Saturday. "We're witnessing another effort to steal private campaign documents in order to influence an election."

The US government has said WikiLeaks is working with Russian operatives.

Clinton made three paid appearances for Goldman Sachs between the time she left the State Department in 2013 and when she announced her presidential campaign in early 2015.

Clinton's paid speeches to Goldman Sachs and other financial firms were a rallying cry for Bernie Sanders supporters during the Democratic primary.

Trump has looked to seize on the WikiLeaks releases, regularly touting them at his events to the point that Democrats have argued he is condoning hacking by Russian operatives. Trump said Saturday that he almost delayed a rally in Maine because of the emails' release.

Clinton's campaign was obviously worried about the speeches, too, the hacked emails show. Staffers asked Tony Carrk, the campaign's head of research, to look into the content and present top campaign aides with comments that could prove politically troubling.

In total, Carrk highlighted five comments from the paid speeches. The comments mostly pertained to regulating the financial industry.

In an October 2013 speech to the financial firm, Clinton implied that action was necessary to curb Wall Street street abuses "for political reasons."

"There was also a need to do something because for political reasons, if you were an elected member of Congress and people in your constituency were losing jobs and shutting businesses and everybody in the press is saying it's all the fault of Wall Street, you can't sit idly by and do nothing," Clinton said.

The Dodd-Frank Wall Street Reform and Consumer Protection Act was passed in 2010 in response to the great recession and looked to impose tighter regulations on financial institutions. While business leaders, especially those leading the financial firms, were generally against the measure, the decision was politically popular with Democrats who blamed Wall Street for the recession.

In the same speech, Clinton said that "more thought has to be given to the process and transactions and regulations so that we don't kill or maim what works, but we concentrate on the most effective way of moving forward with the brainpower and the financial power that exists here."

In a June 2013 speech, just months after she left the State Department, Clinton said she wished the United States could intervene in Syria "covertly as is possible for Americans to intervene."

"We used to be much better at this than we are now. Now, you know, everybody can't help themselves," she said. "They have to go out and tell their friendly reporters and somebody else: Look what we're doing and I want credit for it, and all the rest of it."

In a bit of irony, the WikiLeaks release also brought to light Clinton's reaction to a past release from the group that exposed Democratic cables that cast foreign leaders in a negative light.

Clinton joked that she embarked on the "Clinton Apology Tour."

"It was painful," Clinton said. "Leaders who shall remain nameless, who were characterized as vain, egotistical, power hungry, corrupt. And we knew they were. This was not fiction. And I had to go and say, you know, our ambassadors, they get carried away, they want to all be literary people. They go off on tangents. What can I say. I had grown men cry. I mean, literally."

On Russian relations, Clinton said she wishes she could "continue to build a more positive relationship with Russia."

Clinton added that Putin has rejected some of their attempts to work together "out of hand."

Clinton collected at least $1.8 million for at least eight speeches to big banks, according to figures released by Clinton's campaign and tax documents she released earlier this year.

And while the transcripts show a more blunt, less reserved Clinton, much of what the former secretary of state said to Goldman Sachs and other groups appear generally in line with some of what she has said publicly.

In another 2013 speech, Clinton dismissed the idea that President Barack Obama would have been able to accomplish more if he had schmoozed with Republicans in Congress more often.

"I know that he spent a lot of time early on in the first term with the Republicans in trying, as you recall ... it turned out that the Republicans' side, particularly in the House, couldn't deliver," she said.

Clinton's campaign has so far declined to comment on specifics in the releases, in part, because they don't want to validate any of the hacks. Instead, Clinton's top aides have dismissed the releases as partisan efforts by the Russian government to elect Trump president.

But the releases, which have come daily for the last week, are impacting Clinton's campaign by forcing her aides to constantly comment on emails written long before Clinton ran for president.

And, for possibly this reason, Clinton told Lloyd Blankfein, the head of Goldman Sachs, at an event in October that she wished the presidential election was shorter.

"Look, I am of the mind that we cannot have endless campaigns," said. "It is bad for the candidates. It's bad for the country. I mean, part of the reason why it's difficult to govern is because an election ends and then the next day people start jockeying."
Judge Vivien Rose of London's High Court, finds in favor of Goldman Sachs, that the bank is not liable for the failure of highly speculative trades made by the sovereign wealth fund of Libya.