Goldman Sachs Sued for Selling Libya Billions in "Worthless" Options
Goldman Sachs, the Wall Street investment bank, is being sued in London for selling Libya “worthless” derivatives trades in 2008 that the country’s financial managers did not understand. Libya says it lost approximately $1.2 billion on the deals, while Goldman made $350 million.
At the time, the Libyan Investment Authority (LIA), which invests profits from the country’s oil and gas exports, had assets worth $60 billion under former dictator Muammar Gaddafi. Goldman Sachs convinced LIA to buy long-term call options on six companies: Allianz, a German insurance and investment company; Banco Santander, a Spanish bank; Citbank, a U.S. bank; Électricité de France, a French state utility; ENI, an Italian oil company; and UniCredit, an Italian bank.
What the Libyans did not understand was that if the stocks in these six companies did not rise, their investments would become worthless. Instead the LIA executives were taken in by a trip to Morocco as well as "small gifts, such as aftershaves and chocolates” and an offer of an internship for Mustafa Mohamed Zarti, the brother of the Libyan fund's deputy executive director, in Dubai and London.
“The unique circumstances allowed Goldman Sachs to take advantage of the LIA’s extremely limited financial and legal experience to deliberately exploit its position of influence and to take advantage in a way that generated colossal losses for the LIA but substantial profits for Goldman Sachs,” said LIA Chairman AbdulMagid Breish in a statement.
For example, LIA paid $200 million to gamble on the value of 22.3 million Citigroup shares. At the time, these shares were worth $5.7 billion and so long as they rose in value by at least $200 million, LIA stood to get its money back and the full value of the shares. But since Citigroup’s shares did not rise by at least $200 million, LIA lost its wager.
http://www.corpwatch.org/article.php?id=15922
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