Goldman hits back at LIA over derivatives terms

Goldman Sachs defends claim in court that the Libyan Investment Authority were aware of the terms of derivatives trades.

Goldman Sachs’ lawyer argued against claims that the Libyan Investment Authority (LIA) misunderstood the terms of derivatives trades executed in 2008, which lost the fund $1.2 billion.

Abdulfatah Enaami, a director at the LIA until the end of 2012, was a witness in court today and claimed that Goldman Sachs “abused the LIA’s trust by not fully explaining the outcomes of any term sheet.”

Goldman Sach’s lawyer, Robert Miles, produced presentations and documents to the court, which showed the details of the derivatives trades executed at the time, declaring: “You understood perfectly well.”

The LIA purchased 2.4 million shares in Électricité de France (EDF) with a premium of €50 million, and any return on the investment would be subject to share price movement after three years.

Miles showed the court several term sheets, which outlined the nature of the risk involved for the trades executed by Goldman Sachs executive Youssef Kabbaj.

Enaami told the court the LIA’s understanding was that from a direct purchase of shares, the return would not be affected by the maturity.

He said: “This is what was missing from the explanation Goldman Sachs gave us. They never explained to us it would take a long time, and [Kabbaj] never cared to explain the recovery would be too long to achieve any positive results for the LIA.”

In February 2008, the EDF share price dropped 14% and LIA decided to restructure its investment.

Enaami said: “We relied on the confidence and trust shown to us by Goldman Sachs. They were telling us, ‘it’s the right time to buy again, this is the best solution, we will protect your investment, and we will never disappoint you’.”

This case, which began last week, is ongoing.