A former Goldman Sachs banker gave iPods to members of the Libyan Investment Authority as well as paying for prostitutes, and was one of the Wall Street firm’s top global salesmen in 2008 as a result of its business with the investment fund, the high court in London has heard.
The LIA is suing Goldman for $1.2bn of losses on nine trades that the US bank executed on its behalf between January and April 2008. The fund was set up in 2006 by the late Libyan dictator, Muammar Gaddafi, to manage the country’s oil wealth.
Goldman is disputing the claim, which was filed in 2004, saying the LIA was the victim of the 2008 financial crash, not of any wrongdoing by the bank.
Andrea Vella, a senior Goldman executive who is the first witness called by the bank, was questioned by the LIA’s barrister, Philip Edey QC, on Thursday.
When the barrister told him that the former Goldman executive Youssef Kabbaj had given iPods to LIA staff, Vella expressed surprise and replied: “I am upset, disappointed.”
Kabbaj also paid for prostitutes to win business from the fund, the court heard. When asked by Edey whether this, along with gifting iPods, “would be completely unacceptable conduct for a Goldman Sachs employee” and “crossing a serious line”, Vella replied: “It would have been unacceptable.”
The court was shown an email, sent in August 2008 by Karen O’Keeffe, Goldman’s vice president of employee relations. She wrote: “The firm has a relatively new relationship with the Libyan Investment Authority. As I am sure you can all imagine, there has been significant scrutiny over this particular client – which happens to be a very significant account for the firm.
“Youssef, who is a VP and has been with the firm since only 2006, is the primary point of contact with the LIA. This will be a difficult situation to resolve since Youssef is one of the top, if not the top, salesperson globally, as a result of this single client.”
Vella told the court that Kabbaj was motivated by money. “I didn’t think he would do anything for money … Was he very focused on his compensation? He definitely was.” Vella said he now recognised that Kabbaj was dishonest, but did not think so at the time.
Pressed by Edey whether all three junior Goldman employees on the coverage team for the LIA were “dishonest and have made up for the purposes of financial gain their accounts of the relationship with the LIA?” Vella replied: “Yes.”
The court was shown a chapter of Greg Smith’s book Why I Left Goldman Sachs about “hunting elephants”, an investment banking euphemism for big deals. Vella said: “If you asked people at Goldman Sachs, if they were aware of the details of the Libyan transactions … probably many of them would define them as elephant trades.”
The court also heard that Vella and other Goldman bankers were advising the Libyan fund on investments, but Vella insisted that this “high-level strategic advice” was done on an informal basis and “there is no implication that anyone could rely on that advice”.
A key allegation by the LIA is that Goldman exploited the financial naivety of its staff. Vella rejected this claim in his witness statement, saying he was “pleased and impressed with the level of sophistication”. But when cross-examined by Edey, he admitted that the bank was aware that some LIA staff lacked financial sophistication.
“What was conveyed to me was that we had to be cautious … that there were people at the LIA that were not sophisticated,” Vella said.
In his statement, Vella said that the LIA fully understood the disputed trades and obtained the exposure it wanted but the underlying shares did not perform as it had anticipated.
The case continues however.