Goldman Banker Warned Colleagues Not to ‘Milk Libya’
Executive warned fellow bankers in an internal email not to sell complicated trades that he said Libyan officials weren’t prepared to handle
By SIMON CLARK
Wall Street Journal
July 28, 2016 4:24 p.m. ET
LONDON—A lawyer for Libya’s sovereign-wealth fund disclosed an internal email from a Goldman Sachs Group Inc. banker warning colleagues not to “milk Libya” by selling complicated trades that fund officials weren’t prepared to handle.
The internal email from Driss Ben-Brahim, who left Goldman in 2008, was cited in the High Court in London during closing arguments this week of a case in which the Libyan Investment Authority is suing Goldman for $1.2 billion to cover losses from derivatives it bought from the bank in 2008. The fund alleges that Goldman executives exerted “undue influence” over its officials, who didn’t understand the trades.
Goldman denies wrongdoing and said the Libyan fund understood the risks. A Goldman executive testified during the two-month trial that fund employees were too afraid to take responsibility for the investments because they lived in a country run by a dictator and feared for their lives.
Mr. Ben-Brahim wrote in July 2008, “The biggest risk now is the natural internal pressure to ‘milk’ Libya (I expect everyone and his brother at GS to be visiting them with one brilliant idea after another, some partners will want to prove they can print business and won’t have the instruments of trust). Don’t push hard to do big deals—not now—it has a high risk of backfiring,” he wrote. “Avoid as much as possible complicated derivatives (they are not ready).”
The fund alleges that Goldman already had taken advantage of the lack of financial sophistication of its employees by the time of the email. Goldman arranged nine equity-derivative trades in early 2008 that expired worthless in 2011. Goldman earned about $222 million from the trades, according to the fund. Goldman disputes the amount of profit it made.
Andrea Vella, a Goldman executive who testified during the trial, said in court that fund employees blamed Goldman for the investments because they were too afraid to take responsibility for them in a country run by a dictator, where they could possibly be executed.
“If we put ourselves in Libya at the time, it can’t have been easy to have been the person or the team that decides to make an investment and loses a billion dollars while the market is melting down,” said Mr. Vella, co-head of Asian investment banking at Goldman. “And so at that point you either get, you know, executed, maybe to use a hyperbole, or you put the blame on someone else.”
Closing arguments are expected to end Friday, and the judge will issue a decision this year.
During the trial, emails and documents showed how Goldman bankers worked to win business from the fund. At stake were hundreds of millions of dollars of fees for investing billions on behalf of the oil-rich nation. The fund started during the rule of dictator Moammar Gadhafi in 2006, after the U.S. removed Libya from a list of state sponsors of terrorism.
The bank’s dealings don’t portray it favorably, even if there wasn’t any wrongdoing, said William Cohan, the author of a history of Goldman.
“Goldman, like all firms, needs to do a better job managing people who sell these sophisticated products,” Mr. Cohan said in an interview. “They have to do a better job documenting that customers understand the risks they are taking.”
“We don’t recognize that characterization of the evidence and in any event have robust processes in place,” a representative for Goldman said.
The Libyan fund alleges that Goldman bankers tried to influence its staff with gifts and by awarding an internship to the younger brother of Mustafa Zarti, deputy chief of the fund.
Mr. Zarti was a close associate of Saif al-Islam Gadhafi, a son of the former dictator, court documents show. A spokesman for Mr. Zarti declined to comment.
The fund alleged Youssef Kabbaj, a former Goldman banker who worked closely with the Libyans, paid for two prostitutes in Dubai to entertain himself and Mr. Zarti’s brother. Mr. Kabbaj denied paying for a prostitute for the young man. He declined to comment on whether he paid for a prostitute for himself.
Mr. Ben-Brahim wrote a number of emails in which he urged caution with the Libyans. In one email, he wrote, “We always need to be careful not to let greed take us from ‘commercial’ to ‘obnoxious.’ ”
The fund’s lawyer, Roger Masefield, argued in court this week that Mr. Ben-Brahim’s emails showed he knew the Libyans were unsophisticated investors. Mr. Masefield said this was why Goldman didn’t call Mr. Ben-Brahim to give evidence.
“Mr. Ben-Brahim could not in all honesty have supported Goldman Sachs’s pleaded case that the LIA was sophisticated and capable of understanding the disputed trades,” Mr. Masefield said.
Goldman’s lawyer, Robert Miles, said emails sent by Mr. Ben-Brahim and other executives showed they wanted to make sure “things are done properly.”
“What’s really going on again is these people saying, ‘look, we have got a close commercial relationship with them, we want that relationship to continue,’ ” Mr. Miles said Thursday. “We suggest that when you read those emails in context, that is what they are essentially about.”
Mr. Ben-Brahim declined to comment.
The fund’s lawyers argued that Goldman “crossed the line” from having an “arm’s-length commercial-banking relationship” to become an “in-house bank” and “part of the LIA,” a position from which it could potentially exert undue influence.
Mr. Miles said the bank had an arm’s-length relationship with the fund.
“The evidence at trial has confirmed the frailty of the LIA’s highly ambitious case, and has come nowhere near establishing a case of undue influence,” a representative for Goldman said. “It is clear that they understood the disputed trades and entered into them of their own volition.”
Write to Simon Clark at simon.clark@wsj.com
By SIMON CLARK
Wall Street Journal
July 28, 2016 4:24 p.m. ET
LONDON—A lawyer for Libya’s sovereign-wealth fund disclosed an internal email from a Goldman Sachs Group Inc. banker warning colleagues not to “milk Libya” by selling complicated trades that fund officials weren’t prepared to handle.
The internal email from Driss Ben-Brahim, who left Goldman in 2008, was cited in the High Court in London during closing arguments this week of a case in which the Libyan Investment Authority is suing Goldman for $1.2 billion to cover losses from derivatives it bought from the bank in 2008. The fund alleges that Goldman executives exerted “undue influence” over its officials, who didn’t understand the trades.
Goldman denies wrongdoing and said the Libyan fund understood the risks. A Goldman executive testified during the two-month trial that fund employees were too afraid to take responsibility for the investments because they lived in a country run by a dictator and feared for their lives.
Mr. Ben-Brahim wrote in July 2008, “The biggest risk now is the natural internal pressure to ‘milk’ Libya (I expect everyone and his brother at GS to be visiting them with one brilliant idea after another, some partners will want to prove they can print business and won’t have the instruments of trust). Don’t push hard to do big deals—not now—it has a high risk of backfiring,” he wrote. “Avoid as much as possible complicated derivatives (they are not ready).”
The fund alleges that Goldman already had taken advantage of the lack of financial sophistication of its employees by the time of the email. Goldman arranged nine equity-derivative trades in early 2008 that expired worthless in 2011. Goldman earned about $222 million from the trades, according to the fund. Goldman disputes the amount of profit it made.
Andrea Vella, a Goldman executive who testified during the trial, said in court that fund employees blamed Goldman for the investments because they were too afraid to take responsibility for them in a country run by a dictator, where they could possibly be executed.
“If we put ourselves in Libya at the time, it can’t have been easy to have been the person or the team that decides to make an investment and loses a billion dollars while the market is melting down,” said Mr. Vella, co-head of Asian investment banking at Goldman. “And so at that point you either get, you know, executed, maybe to use a hyperbole, or you put the blame on someone else.”
Closing arguments are expected to end Friday, and the judge will issue a decision this year.
During the trial, emails and documents showed how Goldman bankers worked to win business from the fund. At stake were hundreds of millions of dollars of fees for investing billions on behalf of the oil-rich nation. The fund started during the rule of dictator Moammar Gadhafi in 2006, after the U.S. removed Libya from a list of state sponsors of terrorism.
The bank’s dealings don’t portray it favorably, even if there wasn’t any wrongdoing, said William Cohan, the author of a history of Goldman.
“Goldman, like all firms, needs to do a better job managing people who sell these sophisticated products,” Mr. Cohan said in an interview. “They have to do a better job documenting that customers understand the risks they are taking.”
“We don’t recognize that characterization of the evidence and in any event have robust processes in place,” a representative for Goldman said.
The Libyan fund alleges that Goldman bankers tried to influence its staff with gifts and by awarding an internship to the younger brother of Mustafa Zarti, deputy chief of the fund.
Mr. Zarti was a close associate of Saif al-Islam Gadhafi, a son of the former dictator, court documents show. A spokesman for Mr. Zarti declined to comment.
The fund alleged Youssef Kabbaj, a former Goldman banker who worked closely with the Libyans, paid for two prostitutes in Dubai to entertain himself and Mr. Zarti’s brother. Mr. Kabbaj denied paying for a prostitute for the young man. He declined to comment on whether he paid for a prostitute for himself.
Mr. Ben-Brahim wrote a number of emails in which he urged caution with the Libyans. In one email, he wrote, “We always need to be careful not to let greed take us from ‘commercial’ to ‘obnoxious.’ ”
The fund’s lawyer, Roger Masefield, argued in court this week that Mr. Ben-Brahim’s emails showed he knew the Libyans were unsophisticated investors. Mr. Masefield said this was why Goldman didn’t call Mr. Ben-Brahim to give evidence.
“Mr. Ben-Brahim could not in all honesty have supported Goldman Sachs’s pleaded case that the LIA was sophisticated and capable of understanding the disputed trades,” Mr. Masefield said.
Goldman’s lawyer, Robert Miles, said emails sent by Mr. Ben-Brahim and other executives showed they wanted to make sure “things are done properly.”
“What’s really going on again is these people saying, ‘look, we have got a close commercial relationship with them, we want that relationship to continue,’ ” Mr. Miles said Thursday. “We suggest that when you read those emails in context, that is what they are essentially about.”
Mr. Ben-Brahim declined to comment.
The fund’s lawyers argued that Goldman “crossed the line” from having an “arm’s-length commercial-banking relationship” to become an “in-house bank” and “part of the LIA,” a position from which it could potentially exert undue influence.
Mr. Miles said the bank had an arm’s-length relationship with the fund.
“The evidence at trial has confirmed the frailty of the LIA’s highly ambitious case, and has come nowhere near establishing a case of undue influence,” a representative for Goldman said. “It is clear that they understood the disputed trades and entered into them of their own volition.”
Write to Simon Clark at simon.clark@wsj.com
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