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Goldman Was More than Just an Investment Bank for Libyan Investment Authority

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On Tuesday the Libyan Investment Authority (LIA) argued its case in court against Goldman Sachs saying that Goldman knowingly manipulated the LIA into bad investments.

The LIA is suing the New York bank for $1.2 billion relating to nine investments that went sour in 2008 after Goldman allegedly misused the LIA’s trust by engaging in “undue influence” and “unconscionable bargaining”.

The LIA has been arguing in the trial heard in London’s High Court that Goldman took advantage of the LIA’s lack of experience and insight in investment banking and encouraged the LIA to take on trades that were ultimately valueless.

Roger Masefield, the lawyer representing the LIA, said in his closing remarks Goldman started its business relationship with the LIA, in 2007, soon after a financial consultant left the LIA. The LIA was in a position where they were desperate for guidance and direction from financial experts. Goldman expanded its role to fill this vacancy.

Masefield said that Goldman bankers pursued a relationship with LIA officials that was more than a “normal arm’s length banker-client relationship” as Goldman realized that the LIA  was searching for financial guidance and insight.

By taking on an advisory relationship with the LIA Goldman was not in a position to direct the LIA towards trades that would only benefit Goldman, unless the bank was going to advise the LIA to seek the advice of a separate consulting firm. The other option for Goldman, Masefield explains, was to clearly explain all the risks involved for the LIA to engage in investments with it.

“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,” said Masefield.

In this case Goldman did not clearly explain the risks which allows the LIA to undue the trades, he said.

Goldman rejects all accusations made by the LIA and says its bankers kept a professional “arm’s length” relationship with LIA officials.

Goldman released a statement on Tuesday saying, “we have always disputed the LIA’s claim that it was financially illiterate and it is clear that they understood the disputed trades and entered into them of their own volition.”

Goldman is arguing that it was one of a number of financial institutions that the LIA was in business with and the trades with Goldman are only a simple percentage of the other trades and investments that the LIA was involved in at the time.

Instead of lacking basic financial insight Goldman argues that the LIA was unable to realize how bad the world’s economy was at the time.

The lawyer representing Goldman will be giving his closing remarks in a week.

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