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Libyan Investment Fund Sues Goldman Over Loss
Libya’s sovereign investment fund has filed a lawsuit against Goldman Sachs in London’s High Court, claiming that the bank made more than $1 billion in derivatives trades that became worthless, but left Goldman with a profit of $350 million.
The suit, filed by the Libyan Investment Authority last week but detailed on Thursday, says that Goldman Sachs abused its relationship “of trust and confidence” in entering into the trades, adding that the bank did not keep adequate records about the trades. Throughout the suit, the sovereign fund describes an imbalance between its young and inexperienced staff and Goldman’s savvy bankers, an imbalance, the fund says, the firm abused.
In a news release on Thursday, Abdul Magid Breish, chairman of the Libyan Investment Authority since June 2013, said:
“While Goldman Sachs was orchestrating these unjustly exploitative transactions, it repeatedly told the L.I.A. that it sought a long-term relationship with the L.I.A. as a strategic partner. This was untrue.”
The Libyan authority, which manages the country’s oil wealth, is seeking the losses from the trade.
“We think the claims are without merit, and will defend them vigorously,” said a spokesman for Goldman Sachs. The bank has 14 days to respond to the suit.
Goldman is not the only company that lost money for the sovereign fund, but it is the only one that the fund is suing, a spokesman for the fund confirmed. The United Nations lifted sanctions against Libya in 2003, and the United States and British governments encouraged banks and corporations to do business with the country, then led by Col. Muammar el-Qaddafi. In 2011, as the country sank into civil war, sanctions were reinstated and Goldman Sachs cut all ties (though, according to the Libyan fund, all the money in the investments was already lost).
In fall 2007, Goldman Sachs made a presentation to the Libyan Investment Authority explaining that it wanted to establish a “partnership” with the sovereign fund, the suit says. The bank offered to train authority employees and senior management about the financial markets and products, offering it strategic long-term advice and opportunistic investment options. According to the suit, the bankers said that they were interested in a long-term relationship, not short-term profits.
But a series of equity option trades worth more than $1 billion did not live up to that billing, the suit contends. The trades were inadequately documented by the bank and, when the sovereign fund asked for the records, it took weeks or months for the firm to provide them, the suit says.
The accusations are likely to hit a few nerves. Goldman likes to make money, for itself and its clients. And it has been described by competitors and sometimes by customers as putting its interests above those of its clients. The accusation stood in stark contrast to the firm’s No. 1 business principle, “Our clients’ interests always come first.”
Goldman Deal Threatens Danish Government
There are groundbreaking business deals. And then there are ones that threaten to break up governments. When Denmark gave the global financial giant Goldman Sachs the go-ahead on Thursday to buy a stake in its state utility, the move was not exactly followed by a celebratory signing ceremony.
So divided was the Socialist People’s Party that it withdrew its ministers from the country’s governing coalition. Some party members said the deal ceded too much power to Goldman. Annette Vilhelmsen, the party’s leader, who supported the deal, stepped down from her leadership role since she could not reach agreement within her party.
The party’s withdrawal from the coalition left the government of Helle Thorning-Schmidt, the prime minister, with a tenuous grip on power.
That so many Danes have been aghast at the idea of giving Goldman Sachs a prominent role in the country’s energy future reflects how far the damage to the investment bank’s reputation has spread since the financial crisis.
However much the financial world might envy Goldman’s trading prowess, many Danes see Goldman as an emblem of an industry that helped cause the crisis and then profited handsomely even as much of the Continent still struggles to recover.
Thousands of people have taken to the streets in recent weeks to protest the deal; a prominent banner featured the vampire squid that critics have come to embrace as a symbol of Goldman Sachs. Nearly 200,000 Danes signed an online petition against the deal, a record.
“In Danish, we have an expression, ‘The drop that makes the glass spill over,’ ” he said, “and this was what made the glass spill over.”
Under the terms of the deal, Goldman would invest about $1.45 billion for an 18 percent stake in Dong Energy, the state utility, which has become a green energy exemplar in its push for electricity from wind turbines. Though the deal buys far from a controlling share, the minority stake would come with special privileges.
Goldman would get a seat on the utility’s board. And the bank, along with two Danish pension funds, would have veto power over changes in the utility’s strategy or its executive suite — specifically the utility’s chief executive or chief financial officer. The Danish pension funds are investing about $550 million.
Among the questions about the deal is whether it is being structured to avoid taxes. Goldman’s investment will be made through a company based in Luxembourg. Danish Broadcasting has reported that shares in the Luxembourg company are partly owned by entities based in the Cayman Islands and Delaware.
In a statement, Goldman Sachs said it “complies, and will continue to comply, with all applicable tax laws in Denmark, Luxembourg, the United States and other relevant jurisdictions.” A Cayman Island partnership was set up primarily for investors outside the United States and a Delaware partnership was for investors in the United States, Goldman said.
There has been no shortage of Danish ire about the deal. In an editorial, Berlingske, a national newspaper, has argued that “Goldman Sachs might send a lot of its earnings from the investment to the Cayman Islands to avoid Danish taxes.”
It added, “This happens at the same time the Danish government is fighting against exactly this type of tax evasion.”
On Wednesday, an estimated 4,000 people gathered in front of Parliament to protest the deal. A few supporters also turned up, including Rasmus Jarlov, a member of the Copenhagen City Council and the Conservative Party.
During an interview, he was hit by a snowball, and later, he and three other conservatives were attacked by protesters.
An earlier plan to make a public offering of stock in 2008 was abandoned during the financial crisis. Under the current deal, Goldman and the Danish pension funds will be able to sell their shares back if there is not a public offering by 2018.
Supporters said Goldman had offered the best deal. Mr. Engelbrecht, the parliamentarian, who voted for the deal, said: “I’m not interested in being a shield for Goldman Sachs — they’ve done a lot of crazy things over time with regards to the financial crisis. They’ve got a bad reputation, no doubt about that.”
But he added, “Now they support green growth and green energy, which is something I’m quite proud of. That someone as focused on revenue as Goldman Sachs thinks green growth and green energy, especially wind energy, holds big potential for the future.”
but not to worry . . .
Goldman formed a business standards committee in 2010 to look at how it interacted with clients, including conflicts of interest, disclosure and suitability of investments. The committee, which continues to meet, made 39 recommendations, which, the bank says on its website, it has carried out.
Libya’s sovereign investment fund has filed a lawsuit against Goldman Sachs in London’s High Court, claiming that the bank made more than $1 billion in derivatives trades that became worthless, but left Goldman with a profit of $350 million.
The suit, filed by the Libyan Investment Authority last week but detailed on Thursday, says that Goldman Sachs abused its relationship “of trust and confidence” in entering into the trades, adding that the bank did not keep adequate records about the trades. Throughout the suit, the sovereign fund describes an imbalance between its young and inexperienced staff and Goldman’s savvy bankers, an imbalance, the fund says, the firm abused.
In a news release on Thursday, Abdul Magid Breish, chairman of the Libyan Investment Authority since June 2013, said:
“While Goldman Sachs was orchestrating these unjustly exploitative transactions, it repeatedly told the L.I.A. that it sought a long-term relationship with the L.I.A. as a strategic partner. This was untrue.”
The Libyan authority, which manages the country’s oil wealth, is seeking the losses from the trade.
“We think the claims are without merit, and will defend them vigorously,” said a spokesman for Goldman Sachs. The bank has 14 days to respond to the suit.
Goldman is not the only company that lost money for the sovereign fund, but it is the only one that the fund is suing, a spokesman for the fund confirmed. The United Nations lifted sanctions against Libya in 2003, and the United States and British governments encouraged banks and corporations to do business with the country, then led by Col. Muammar el-Qaddafi. In 2011, as the country sank into civil war, sanctions were reinstated and Goldman Sachs cut all ties (though, according to the Libyan fund, all the money in the investments was already lost).
In fall 2007, Goldman Sachs made a presentation to the Libyan Investment Authority explaining that it wanted to establish a “partnership” with the sovereign fund, the suit says. The bank offered to train authority employees and senior management about the financial markets and products, offering it strategic long-term advice and opportunistic investment options. According to the suit, the bankers said that they were interested in a long-term relationship, not short-term profits.
But a series of equity option trades worth more than $1 billion did not live up to that billing, the suit contends. The trades were inadequately documented by the bank and, when the sovereign fund asked for the records, it took weeks or months for the firm to provide them, the suit says.
The accusations are likely to hit a few nerves. Goldman likes to make money, for itself and its clients. And it has been described by competitors and sometimes by customers as putting its interests above those of its clients. The accusation stood in stark contrast to the firm’s No. 1 business principle, “Our clients’ interests always come first.”
Goldman Deal Threatens Danish Government
There are groundbreaking business deals. And then there are ones that threaten to break up governments. When Denmark gave the global financial giant Goldman Sachs the go-ahead on Thursday to buy a stake in its state utility, the move was not exactly followed by a celebratory signing ceremony.
So divided was the Socialist People’s Party that it withdrew its ministers from the country’s governing coalition. Some party members said the deal ceded too much power to Goldman. Annette Vilhelmsen, the party’s leader, who supported the deal, stepped down from her leadership role since she could not reach agreement within her party.
The party’s withdrawal from the coalition left the government of Helle Thorning-Schmidt, the prime minister, with a tenuous grip on power.
That so many Danes have been aghast at the idea of giving Goldman Sachs a prominent role in the country’s energy future reflects how far the damage to the investment bank’s reputation has spread since the financial crisis.
However much the financial world might envy Goldman’s trading prowess, many Danes see Goldman as an emblem of an industry that helped cause the crisis and then profited handsomely even as much of the Continent still struggles to recover.
Thousands of people have taken to the streets in recent weeks to protest the deal; a prominent banner featured the vampire squid that critics have come to embrace as a symbol of Goldman Sachs. Nearly 200,000 Danes signed an online petition against the deal, a record.
“In Danish, we have an expression, ‘The drop that makes the glass spill over,’ ” he said, “and this was what made the glass spill over.”
Under the terms of the deal, Goldman would invest about $1.45 billion for an 18 percent stake in Dong Energy, the state utility, which has become a green energy exemplar in its push for electricity from wind turbines. Though the deal buys far from a controlling share, the minority stake would come with special privileges.
Goldman would get a seat on the utility’s board. And the bank, along with two Danish pension funds, would have veto power over changes in the utility’s strategy or its executive suite — specifically the utility’s chief executive or chief financial officer. The Danish pension funds are investing about $550 million.
Among the questions about the deal is whether it is being structured to avoid taxes. Goldman’s investment will be made through a company based in Luxembourg. Danish Broadcasting has reported that shares in the Luxembourg company are partly owned by entities based in the Cayman Islands and Delaware.
In a statement, Goldman Sachs said it “complies, and will continue to comply, with all applicable tax laws in Denmark, Luxembourg, the United States and other relevant jurisdictions.” A Cayman Island partnership was set up primarily for investors outside the United States and a Delaware partnership was for investors in the United States, Goldman said.
There has been no shortage of Danish ire about the deal. In an editorial, Berlingske, a national newspaper, has argued that “Goldman Sachs might send a lot of its earnings from the investment to the Cayman Islands to avoid Danish taxes.”
It added, “This happens at the same time the Danish government is fighting against exactly this type of tax evasion.”
On Wednesday, an estimated 4,000 people gathered in front of Parliament to protest the deal. A few supporters also turned up, including Rasmus Jarlov, a member of the Copenhagen City Council and the Conservative Party.
During an interview, he was hit by a snowball, and later, he and three other conservatives were attacked by protesters.
An earlier plan to make a public offering of stock in 2008 was abandoned during the financial crisis. Under the current deal, Goldman and the Danish pension funds will be able to sell their shares back if there is not a public offering by 2018.
Supporters said Goldman had offered the best deal. Mr. Engelbrecht, the parliamentarian, who voted for the deal, said: “I’m not interested in being a shield for Goldman Sachs — they’ve done a lot of crazy things over time with regards to the financial crisis. They’ve got a bad reputation, no doubt about that.”
But he added, “Now they support green growth and green energy, which is something I’m quite proud of. That someone as focused on revenue as Goldman Sachs thinks green growth and green energy, especially wind energy, holds big potential for the future.”
but not to worry . . .
Goldman formed a business standards committee in 2010 to look at how it interacted with clients, including conflicts of interest, disclosure and suitability of investments. The committee, which continues to meet, made 39 recommendations, which, the bank says on its website, it has carried out.