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Expert Witness says Goldman is at Fault for the LIA’s Unsuitable Trades

(Author: Libyan Gazette Editorial Staff)

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Court sessions continue in the lawsuit filed by the Libyan Investment Authority (LIA) against the American investment bank Goldman Sachs. In a recent court appearance an expert witness said the investments that Goldman was able to persuade the LIA to take on were “dint of risk and complexity”, an allegation that Goldman denies.

The LIA is suing Goldman for $1.2 billion for the nine trades in question. The LIA is saying that Goldman knew that the LIA was not knowledgeable in investment banking and that it relied on Goldman for advice and guidance. Goldman allegedly manipulated the LIA’s trust and took advantage of them.

Martin Harrison, managing director of a management consultancy known as SUMMA Ltd, addressed the suitability of the trades as an expert witness for the LIA. “If a sovereign wealth fund enters into an investment which is of a sophistication (in terms of risk and complexity) that falls utterly beyond the competence of the institution to cope with it in terms of expertise and organization, then that investment is without question unsuitable,” explained Harrison in a report presented to the court.

During cross examination Robert Miles, a lawyer representing Goldman, questioned Harrison about whether his statement addressed the LIA’s lack of good governance instead of addressing the suitability of the trades.

Harrison replied saying that his statement addressed both explaining that “if there is no asset allocation framework, it is going to be very hard to determine whether a prospective investment fits.”

Harrison established his credentials as an expert witness saying that he has extensive experience working with national investment funds and added that the use of strategic derivatives was uncommon for internal teams even if the national fund has been well established for a number of years.

Harrison ends his report by saying, “I conclude that the disputed trades were incongruous and exceptional trades. They were unsuitable for the LIA and I can find no investment rationale for them.”

Goldman countered saying “The disputed trades were straightforward transactions from the LIA’s perspective which the LIA was able to and did in fact understand.”

Appearing in court to testify for Goldman was Eliot Kalter, a senior fellow at Tufts University’s Fletcher School. Kalter assessed Harrison’s report and presented his feedback saying that the trades were not unusual. The LIA’s investments were one of many made back in 2008.

“As it turned out, financial stocks performed poorly over the subsequent years … It is this decline in the share prices, rather than any structural feature of the investment, which resulted in the LIA suffering losses on the disputed trades,” Kalter’s said in his report.

Goldman has previously argued in court that the trades “were not difficult to understand.” However, evidence presented by the LIA demonstrates the immoral lengths Goldman was willing to go to persuade the LIA to take on what has been deemed to be worthless trades. Goldman banker, Youssef Kabbaj, is said to have offered the brother of an executive member of the LIA an internship, fully paid luxury trips and even using prostitutes to lure the LIA into worthless investments.

The court sessions are expected to go on until the end of July.

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