Goldman Sachs vindicated; bruised in court battle

LONDON: 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.

The London High Court found in favour 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 mesmerised 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 centred 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 football 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.