The Libyan wealth fund's former deputy chief screamed and cursed at Goldman Sachs bankers in a stormy meeting over derivatives trades made on the bank's advice that ultimately turned out to be worthless, a witness told a court on Tuesday.
In a trial at London's High Court, the Libyan Investment Authority (LIA) is trying to claw back $1.2 billion from Goldman Sachs related to nine disputed trades carried out in 2008.
The LIA argues Goldman took advantage of its financial naivety by first gaining its trust, then encouraging it to make risky and ultimately worthless investments.
Goldman Sachs denies the allegations and says the trades in question "were not difficult to understand".
The LIA called as its final witness Catherine McDougall, a former Allen & Overy lawyer who was seconded to the LIA in July 2008 by Allen & Overy to assist and provide training to the LIA’s legal team.
McDougall said that from her conversations with LIA staff, specifically members of the Equities team, she found they had no idea what they had actually purchased. They were under the impression they had bought shares or "quasi shares" whereas the products they had were "completely synthetic".
She said she brought this up with the LIA, with Allen and Overy and eventually with Goldman Sachs.
McDougall told the court she had little experience of derivatives at the time but said LIA executives seemed to have even less. She said they did not understand how derivatives worked or what were call and put options.
She said that in response to her question in July 2008 about what kind of due diligence had been done before the trades, one of the LIA officials had asked: "Due what?" However, she said the exchange took place in a meeting and she didn't recall the name of the official.
In her statement, she said she felt "Goldman Sachs had unfairly taken advantage of the LIA's lack of sophistication ... and sold the LIA $1 billion worth of derivatives products the LIA could not understand".
Robert Miles, a lawyer acting for Goldman, stated to McDougall that the LIA officials had understated their understanding of the trades "in order to shift the blame".
The LIA equity team had also seemed to implicitly trust Youssef Kabbaj, the banker who was Goldman's main contact with the LIA, and relied completely on his advice, McDougall said.
"I think they didn't understand how much Mr Kabbaj stood to gain personally from his relationship with them. They were ... very effusive and very welcoming and they trusted people. They thought he was their friend," she told the court.
Kabbaj no longer works for Goldman and has signed a confidentiality agreement with the bank. He has commented once to the media but has declined to speak further, citing the agreement.
Goldman says its relationship with the LIA was at all "material times an arm's length one" between banker and client.
In a witness statement seen by Reuters, McDougall said she told Mustapha Zarti, the LIA's then deputy chief, that she could not see "one redeeming feature" in the trades.
Following this, she said, she was present at a meeting between Zarti, Kabbaj and Kabbaj's colleague Nick Pentreath at which Zarti lost his temper, swore at the men and threatened to "come after their families."
Zarti is no longer connected with the LIA. Reuters has been unable to reach him for comment.
Miles cited documents provided by Goldman to the LIA which he said showed the nature of the deals and clearly explained the conditions under which the trades could lose money.
Goldman Sachs will begin its defence on Thursday.