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

Tue Jul 26, 2016 1:48pm EDT
 
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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.   Continued...

 
The logo of Dow Jones Industrial Average stock market index listed company Goldman Sachs (GS) is seen on the clothing of a trader working at the Goldman Sachs stall on the floor of the New York Stock Exchange, United States April 16, 2012. REUTERS/Brendan McDermid/File Photo   - RTSGB01