The Libyan Investment Authority (LIA) was attempting to claw back $1.2 billion from the Wall Street giant in relation to nine equity derivatives trades carried out in 2008, which expired worthless.

The LIA said it was "naturally disappointed" with the judgment handed down by Judge Vivien Rose. "Time will be needed fully to digest the judgment and all options are being considered at this time," it said in a statement.

While lawyers for the LIA declined to comment, a source with knowledge of the matter told Reuters: "I would be very surprised if there wasn't an appeal."

In the trial, which ran for seven weeks in London's High Court in the summer, the LIA argued that trades were secured through "undue influence" and "unconscionable bargaining."

It claimed that it was too unsophisticated to understand what it was buying, and that Goldman had abused its position as a trusted adviser.

Goldman Sachs disputed the LIA's claim that the wealth fund was financially naive, saying that "an unforeseen financial depression" had caused the losses, not any wrongdoing by the bank.

It also maintained that its relationship with the LIA was at all "material times an arm's length one" between banker and client.

The LIA is also pursuing the French investment bank Societe Generale for some $2.1 billion in relation to another set of trades entered into between 2007 and 2009. SocGen is contesting the case, which is only expected to come to trial in April 2017. </s> Goldman Sachs has won a $1bn lawsuit brought against it by the Libyan Investment Authority (LIA) in a high profile legal case.



 A High Court judge said on Friday that she had dismissed the LIA’s case that the wealth fund was subject to undue influence by Goldman Sachs by entering into nine disputed trades.

The ruling comes after a hard fought High Court trial in which it was claimed Goldman exploited the LIA’s limited financial experience and in which the court heard details of Goldman bankers trying to get close to LIA officials to win lucrative business from the sovereign wealth fund by offering lavish corporate hospitality – and in one case procuring prostitutes.

The LIA case revolved around claims that it was a fledging wealth fund and was forced by Goldman into risky derivative trades in which the US bank made $200m in profits but the LIA lost its entire $1.2bn investment.

The bank denied this and claimed the LIA was suffering from a classic case of “buyer’s remorse”.

The wealth fund focused on the activities of an ambitious Goldman banker and would-be rainmaker named Youssef Kabbaj and his attempt to cement Goldman’s relationship with the Libyan sovereign wealth fund which had been set up by Colonel Gadaffi with $65bn of assets.

The LIA claimed in court that Mr Kabbaj procured prostitutes and that Goldman paid for staff from the LIA to stay in five-star London hotels as well as offering them tickets to Champions League football games and to musical productions of Chicago and Lord of the Rings.

The LIA also claimed Mr Kabbaj “crossed the line” in deliberately blurring “professional and personal relationships” in locations ranging from Tripoli and Dubai.

It heard claims that Haitem Zarti, the brother of an LIA executive who previously run nothing more substantial than a video club, was flown business class to Dubai and out up at the five star Ritz Carlton hotel in Dubai to attend a Goldman conference and he was later offered a prestigious 11-month internship at Goldman in the bank’s hope that he would one day become an important LIA official, the court heard in the trial.

Mrs Justice Rose ruled that an internship offered to Haitem Zarti by Goldman was done so in the belief that he would occupy a senior position in the LIA and that the internship did not influence the LIA into entering the disputed trades.

She found that Goldman did not exercise undue influence on the LIA and the wealth fund had their own reasons for doing the deals. Goldman did not make “excessive” profits on the deals, she added.

The LIA said in a statement: </s> LONDON (Reuters) - 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.

A sign is displayed in the reception of Goldman Sachs in Sydney, Australia, May 18, 2016. REUTERS/David Gray/File Photo

The London High Court found in favor 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 mesmerized 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 centered 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 soccer 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. It argued that “an unforeseen financial depression” caused the losses, not any wrongdoing by the bank, and it was simply a case of “buyer’s remorse”.

BONE OF CONTENTION

A key bone of contention at trial was whether the fund’s employees actually understood what they were investing in. Although lawyers for the LIA argued that Goldman Sachs had taken advantage of the fund’s lack of sophistication, Judge Rose said the LIA had greatly exaggerated the naivety of its staff.

The LIA made much of the fact that Goldman had wined and dined its employees, plying them with gifts such as iPods, as well as offering a prestigious internship to Haitem Zarti, the younger brother of Mustafa Zarti, a key decision-maker at the fund.

The provision of such highly sought-after internships has come under scrutiny by U.S. regulators since 2008 as part of broader moves to shine a light on how banks go about securing business in less transparent emerging markets.

But Judge Rose said she did not think the internship had a material influence on Mustafa Zarti’s decision to enter into trades with Goldman Sachs. She also ruled that the main motivation behind the offer was the bank’s belief Haitem might be chosen to lead the LIA’s new office in London.

Even the salacious details relating to how former Goldman Sachs sales executive Youssef Kabbaj went about building a close relationship with the LIA were given short shrift by the judge.

The LIA had alleged that Kabbaj flew Haitem Zarti from Morocco to Dubai at Goldman Sachs’ expense, paid for accommodation at a five-star hotel and arranged for two prostitutes to spend the evening with them at a cost of $600.

Kabbaj, who did not appear as a witness, and remains bound by a strict confidentiality agreement with Goldman, denied paying for “improper entertainment”.

Judge Rose said that whilst the extent of the entertainment offered by Kabbaj to Haitem was “inappropriate, and in flagrant breach of Goldman Sachs’ policy on entertaining clients”, it was not relevant.

GOING THE EXTRA MILE

The LIA argued that the trades were secured through “undue influence” and “unconscionable bargaining”. This meant the LIA had to show it had only entered into the trades because it was shorn of the ability to make free and independent decisions, and that the terms of the transactions were “overreaching and oppressive”.

To this end, lawyers argued that Goldman had “crossed the line” and abused its position as a trusted adviser to the fund.

Goldman contended that it was always clear the two were dealing with each other as commercial counterparties, and that it had maintained an arm’s length relationship with its client.

Once again, Judge Rose found in favor of Goldman: “The fact that Goldman Sachs were prepared to go an extra mile when competing for this business by installing Mr Kabbaj in Tripoli to help the LIA does not mean that they were in a different relationship from the relationship that existed between the LIA and its other counterparties,” she said.

The relationship came to a head at a stormy meeting at the LIA’s offices on July 23, 2008, in which Mustafa Zarti, the fund’s then deputy chief, swore at Goldman’s representatives and threatened to “come after their families”, a witness, Catherine McDougall, told the court.

According to a witness statement by McDougall, a former Allen & Overy lawyer who was seconded to the LIA in July 2008: “His curses were along the lines of ‘fuck your mother, fuck you and get out of my country’.”

Zarti’s explosive rage was corroborated by Kabbaj’s report of the same meeting, as related in a letter seen by the court.

Kabbaj said Zarti had called Goldman Sachs “a bank of Mafiosi”, that Goldman had lied to him, and that when someone behaved like a bandit with him, he could “become himself a bandit”.

But Judge Rose said there was something “stage managed” about this stormy meeting. “The meeting seems to have been conducted so as to have maximum impact by turning on a dime from ‘chit chat’ to explosive and frightening abuse,” she said.

Goldman described Friday’s ruling as “a comprehensive judgment in our favor”, while the LIA expressed its disappointment and said all options were being considered.

The fund is potentially an important source of finance for rebuilding Libya after years of war and chaos, but some of its assets have been under U.N. sanctions since the overthrow of ruler Muammar Gaddafi in 2011. A power struggle over the fund is still raging.

The LIA is also pursuing French investment bank Societe Generale for some $2.1 billion in relation to trades entered into between 2007 and 2009. SocGen is contesting the case, which is only expected to come to trial in April 2017. </s> The Libyan Investment Authority (LIA) was attempting to claw back the $1.2 billion from the Wall Street giant in relation to nine equity derivatives investments carried out in 2008, which turned out to be worthless.

In the trial, which ran for seven weeks in London's High Court in the summer, the LIA argued that Goldman exercised "undue influence" and "unconscionable bargaining" to get it to enter the trades, asserting that the terms of the transactions were "overreaching and oppressive", as defined by English law.

The LIA claimed it was too unsophisticated to understand what it was buying, and that Goldman had abused its position as a trusted adviser. The trades were made two years after the LIA was set up to invest the country's oil wealth.

But in her 120-page judgment, seen by Reuters, Judge Vivien Rose dismissed these claims.

She said that having considered all the evidence: "I find that the LIA has greatly exaggerated the extent to which senior and junior personnel were naïve and unworldly about the nature of the dynamics of their relationship with Goldman Sachs."

In fact, the key decision-makers understood the trades and the risks, and they were consistent with the fund's need to get invested quickly, she said.

"The LIA management were tasked with generating a much higher return than they could hope to make on plain vanilla trades," she said. "This explains why they were prepared to enter into the speculative disputed trades even though this might appear to conflict with the long-term growth objectives of the LIA as a SWF."

Responding to the judgment, Goldman Sachs said it was pleased to win the case, "with a comprehensive judgment in our favor".

The LIA said it was "naturally disappointed" and added in a statement: "Time will be needed fully to digest the judgment and all options are being considered at this time."

While lawyers for the LIA declined to comment, a source with knowledge of the matter told Reuters: "I would be very surprised if there wasn't an appeal."

Goldman Sachs had disputed the LIA's claim that the wealth fund was financially naive, saying that "an unforeseen financial depression" had caused the losses, not any wrongdoing by the bank.

It had also maintained that its relationship with the LIA was an arm's length one between banker and client.

The LIA's lawyers had argued in court that Goldman Sachs had gained the trust of fund executives by providing lavish hospitality and gifts as well as a prestigious internship offered to Haitem Zarti, the younger brother of Mustafa Zarti, a key LIA decision-maker at the time.

But the judge found that the main motivation behind the offer was the bank's belief the younger Zarti might be chosen to lead the LIA's new office in London.

Whilst this may have contributed to a "friendly and productive atmosphere" during negotiation over several trades, it did not have a material influence on the LIA's decision to go ahead with these, she added.

She disagreed that the hospitality went beyond what was provided by other banks, citing in particular documents presented by Goldman to the court which showed tickets to top sporting events were provided by another bank to LIA officials.

The judge also found there were no grounds for concluding that profits earned by Goldman Sachs on the disputed trades were excessive.

The LIA is also pursuing the French investment bank Societe Generale for some $2.1 billion in relation to another set of trades entered into between 2007 and 2009. SocGen is contesting the case, which is only expected to come to trial in April 2017. </s> Editor's note: Morning Scan will not publish on Wednesday, July 4, in observance of Independence Day. We’ll be back on Thursday, July 5.



Missed signals: A federal judge ordered PricewaterhouseCoopers to pay $625.3 million in damages for failing to detect a fraud that led to the 2009 failure of Alabama’s Colonial Bank, one of the largest bank failures during the financial crisis. U.S. District Judge Barbara Jacobs Rothstein ruled last December the accounting firm was negligent in failing to discover the fraud at Colonial, and on Monday she sided with the Federal Deposit Insurance Corp., the failed bank’s receiver, on the proper level of damages.

The judgment against PwC “is one of the largest judgments or settlements ever for malpractice by an accounting firm, and accentuates longstanding concerns over the quality of audits performed by the Big Four accounting firms,” the Wall Street Journal says. Wall Street Journal, Financial Times



Let’s make a deal: The Federal Reserve showed mercy when it gave Goldman Sachs and Morgan Stanley the option of accepting failure on the second round of stress tests or agreeing to hold steady the amount of dividends and stock buybacks they will return to shareholders. The banks settled on the latter, rather than having to retake the tests if they wanted to return more to investors.

“The arrangement is the first of its kind in the eight years of the Fed’s annual tests, and one of the clearest signs to date of a significant shift in the regulatory environment for banks, which have been expecting a gentler approach from Washington ever since the election of President Donald Trump,” the paper comments.

On the hunt: Social Finance wants to build a $500 million war chest through an unsecured line of credit from banks “that could go toward potential buyouts of other financial-technology firms.” SoFi, which is now led by Anthony Noto, a former Goldman Sachs banker, “is looking to ramp up acquisitions as a way to make the online lender a more full-service financial institution.”

“We don’t have any near-term plans, but we’re building a strategy and a process to evaluate the different opportunities as they come our way,” Noto said.

Where are they now: Fabrice Tourre, the former Goldman Sachs subprime mortgage bond trader who was convicted in 2013 of federal charges of defrauding investors, is now conducting postdoctoral research in economics at Northwestern University.

Joseph Cassano, the former chief executive of AIG’s financial products unit in London, now devotes his time to philanthropy. “Few individuals played a more pivotal role in the financial crisis than” he, the paper says.



Moving toward legitimacy: Switzerland is expected to grant cryptocurrency companies full access to conventional banking services by the end of the year, “removing one of the restrictions to future growth.” The move would allow “crypto companies to operate with banks in the same way as other companies.”



Growing shadow: The so-called shadow banking industry in the U.K. is now larger than the country’s GDP, according to the Office for National Statistics. The agency estimated the nonbank lending industry totals £2.2 trillion, although it could be much larger. By contrast, traditional British banks have combined balance sheets of £12 trillion.



“We are pleased that the court recognized there are consequences when an auditor breaches its duty to the investing public.” — FDIC attorney Stephen Sorensen on a federal judge’s ruling against PricewaterhouseCoopers in the failure of Colonial Bank. </s> PARIS — Christine Lagarde, the managing director of the International Monetary Fund, went on trial in Paris on Monday, facing criminal charges that when she was France’s finance minister, her negligence resulted in the misuse of hundreds of millions of euros in public money.

The trial caps a long-running legal drama that has overshadowed her role at the agency, captivated and irritated the French public, and exposed ties between powerful politicians and the wealthy. It has also compelled Ms. Lagarde to defend herself repeatedly since taking over at the I.M.F. in 2011, when another former French finance minister, Dominique Strauss-Kahn, resigned after being accused of sexually assaulting a maid in a New York City hotel.

Ms. Lagarde is accused of “negligence by a person in a position of public authority” in overseeing a politically charged arbitration case in 2007. In the case, Bernard Tapie, a flamboyant French tycoon close to Nicolas Sarkozy, then France’s president, was awarded more than 400 million euros, or $430 million, to settle a dispute with the partly state-owned bank Crédit Lyonnais.

Her lawyer appealed for a postponement, but the court — which is hearing the case in the same courtroom where the French queen Marie-Antoinette was tried — denied the request. The trial is scheduled to run through Dec. 20 but could conclude earlier. </s> France’s second-biggest bank, Société Générale, has agreed to pay €500m to settle inquiries in the US and France into its dealings with the regime of slain Libyan dictator Muammar Gaddafi, prosecutors said Monday.

The French financial prosecutor’s office said the bank had agreed to pay €250m each to France and the US to avoid corruption trials on either side of the Atlantic.

Société Générale itself announced earlier that it reached agreements to settle the Libya investigations as well as a separate US investigation into its alleged rigging of the London Interbank Offered Rate (Libor) interest rates.

The bank did not say how much it had paid in total but that it had already provided for the cost and that it would have "no impact on Societe Generale’s results".

In May, it said it had set aside €1bn to settle the disputes.

Libya’s sovereign wealth fund, the Libyan Investment Authority (LIA), had accused Société Générale of channelling bribes to associates of Gaddafi’s son Seif al-Islam as part of a "corrupt scheme" to get the LIA to invest billions in Société Générale and its subsidiaries between 2007 and 2009.

The fund claimed that at least $58m in bribes were routed through a Panama-registered company called Leinada, which was headed by an associate of Seif al-Islam.

Société Générale paid nearly €1bn to the LIA in 2017 to settle the case before it opened in the High Court in London. But it remained under investigation in the US and France.

On Monday, a French court approved the deal struck with French authorities to avoid a trial, with a US court expected to follow suit on Tuesday.

Société Générale said it had also struck a deal with the US Department of Justice over its alleged attempt to manipulate Libor, which governs credit costs around the world.

The bank is the latest in a string of lenders, including Deutsche Bank, HSBC, Royal Bank of Scotland and Goldman Sachs, to pay hefty sums to settle allegations of conspiring to rig the rate.

The announcement marks an end to a scandal that led to the surprise departure of SSociété Générale’s deputy CEO Didier Valet in March.

Valet, who reportedly quit over the way the dispute with US was handled, was one of two senior executives to step down, along with the bank’s head of retail banking.

The departures rattled investors, casting a pall over Société Générale’s results in the first quarter.

Higher-than-expected net profits of €850m were offset by a decline in revenues of 2.8% to €6.3bn.

Société Générale said that its French retail banking revenues were hit by low interest rates but were expected to stabilise in 2018. </s> The U.S. Supreme Court on Tuesday ruled that foreign corporations cannot be sued in American courts for human rights abuses overseas, refusing to revive a lawsuit claiming Jordan-based Arab Bank Plc helped finance militant attacks in Israel and the Palestinian territories.

The 5-4 decision brought to an end a lawsuit brought by some 6,000 non-U.S. citizen plaintiffs, including survivors and relatives of people killed in attacks, filed under a 1789 U.S. law called the Alien Tort Statute that accused Arab Bank of being the "paymaster" to militant groups.

The court ruled along ideological lines, with its five conservatives in the majority and its four liberal justices dissenting.

Conservative Justice Anthony Kennedy, writing for the court, said the "relatively minor connection between the terrorist attacks at issue in this case and the alleged conduct in the United States" illustrates the problems of extending liability to foreign corporations.

In ruling for the bank, the court for the second time in five years curbed the ability of plaintiffs to sue corporations in U.S. courts under the Alien Tort Statute for human rights violations occurring abroad. Other foreign-based companies to have faced such suits include Royal Dutch Shell PLC, Nestle SA and Daimler AG.

"Arab Bank is pleased with the court's decision, which ends this litigation and affirms the bank's belief that there is no basis to hold corporations liable under international law," the bank said in a statement.

Lawyers for the plaintiffs could not immediately be reached for comment.

The ruling delivered a blow to human rights lawyers but left open the possibility of U.S. corporations being sued under the Alien Tort Statute in limited circumstances.

Paul Hoffman, who represents plaintiffs in such disputes, said a current case in which Indonesian villagers sued U.S.-based Exxon Mobil Corp for alleged human rights abuses carried out by security forces working for the company should be unaffected by Tuesday's ruling.

Hoffman said Kennedy "went out of his way to avoid a categorical ruling" shielding U.S. corporations.

The plaintiffs accused Arab Bank of deliberately financing terrorism, including suicide bombings and other attacks. They said Arab Bank used its New York branch to transfer money that helped Hamas and other Islamist militant groups fund attacks and reward families of perpetrators between 1995 and 2005.

Noting that the case has caused significant diplomatic tension with Jordan, a U.S. ally, Kennedy said the "political branches are in a better position" to extend that liability if they so choose.

Liberal Justice Sonia Sotomayor wrote in a dissent that barring suits against foreign companies ensures they "remain immune from liability for human rights abuses, however egregious they may be."

The lead plaintiff in the Arab Bank case was Joseph Jesner, whose British citizen son was killed at age 19 in a 2002 suicide bombing of a bus in Tel Aviv. The bank said in court papers the U.S. government has called it a constructive partner in the fight against terrorism financing.

In its previous 2013 ruling, the Supreme Court did not resolve the corporate liability question when it ruled in favor of Shell over a lawsuit claiming the company was complicit in a crackdown on protesters in Nigeria.

That 2013 ruling narrowed the Alien Tort Statute's reach, saying claims must sufficiently "touch and concern" the United States to overcome the presumption that the law does not cover foreign conduct.

In a separate case involving U.S. citizens that was brought under a different law, a New York jury in 2014 found Arab Bank liable for facilitating two dozen militant attacks in Israel.

That ruling was overturned on appeal in January. </s> Christine Lagarde will remain head of the International Monetary Fund despite being convicted of negligence in a case dating to her tenure as France’s finance minister.

The IMF’s executive board said it had “full confidence” in Lagarde’s ability to carry out her duties at the head of the Washington-based international lending agency.

After a week-long trial, France’s Court of Justice of the Republic on Monday found Lagarde guilty of one count of negligence but spared her jail time and a criminal record.

The 60-year-old IMF leader had potentially faced a year of imprisonment and a fine for not seeking to block a fraudulent 2008 arbitration award to a politically connected tycoon when she was finance minister.

Lagarde thanked the board for the vote of confidence “in my ability to do my job”. She said she would not appeal against the French court’s decision.

“I am not satisfied with it, but there’s a point in time when one must stop, turn the page and move on,” she said.

Lagarde, a lawyer, became France’s first female finance minister in 2007, overseeing the country’s response to the financial crisis that rocked the global economy from 2008. She is also the first woman to head the IMF.

“She is a strong leader,” US Treasury Secretary Jacob Lew said after the board’s decision. “And we have every confidence in her ability to guide the fund at a critical time for the global economy.”

The Court of Justice of the Republic is a special tribunal to hear cases of alleged criminality by ministers in office and is made up of three judges and 12 parliamentarians.

It ruled that Lagarde’s negligence in her management of a long-running arbitration case involving tycoon Bernard Tapie helped open the door for the fraudulent misappropriation of public funds. Lagarde herself was not accused of fraud.

The case revolves around a 403 million-euro (£337 million) arbitration award given to Mr Tapie in 2008 over the botched sale of sportswear giant Adidas in the 1990s.

Civil courts have since quashed the unusually generous award, declared the arbitration process and deal fraudulent and ordered Mr Tapie to refund the money.

The special court’s presiding judge, in reading the verdict, said Lagarde should have asked her aides and others for more information about the “shocking arbitration award”.

In deciding not to sentence Lagarde, the court noted that the award to Mr Tapie has since been annulled, sparing damage to the public purse. It also noted that Lagarde was busy at the time with the global economic crisis.

Lagarde’s “personality and national and international reputation” also counted in her favor in the decision not to punish her, the court ruled.

Lagarde, who was not present for the verdict, maintained her innocence through the trial. The prosecutor had asked for an acquittal in the case, which began in 2011.

The special court acquitted Lagarde of negligence in her original decision to put the Tapie case to arbitration. But it found her guilty in a subsequent decision not to contest the amount of the arbitration award.

The legal battle between Mr Tapie and Credit Lyonnais over the public bank’s sale of his Adidas stake was still unresolved when Lagarde took over at the Finance Ministry in 2007.

Lagarde ordered that the dispute be settled through a private arbitration panel, instead of regular courts. The massive award raised questions about whether Mr Tapie benefited from his political connections, including with then-President Nicolas Sarkozy, Lagarde’s boss when she was his finance minister.
Judge Vivien Rose of London's High Court, finds in favor of Goldman Sachs, that the bank is not liable for the failure of highly speculative trades made by the sovereign wealth fund of Libya.