Ex-US bank sales chief denies Libya fund claims of 'improper entertainment' in US$1.2bn court case

A Goldman Sachs executive at the centre of a US$1.2 billion claim brought by Libya’s sovereign wealth fund has denied allegations he paid for “improper entertainment” for himself and the younger brother of a key decision-maker at the fund on a business trip.

Youssef Kabbaj, a former Goldman Sachs sales team executive, also said that all his expenses linked to the Libyan Investment Authority (LIA) had always been signed off by at least two senior partners at the bank and fully reimbursed by Goldman.

In a trial at London’s High Court, the $67bn LIA is attempting to claw back $1.2bn from nine trades it carried out with Goldman Sachs in 2008.

The LIA argues that the US investment bank took advantage of its financial naivety by first gaining its trust, then encouraging it to make risky and ultimately worthless investments in nine trades it carried out in 2008.

Goldman Sachs denies all the allegations. “The claims are without merit and we will continue to defend them vigorously,” the bank said.

Robert Miles, a lawyer acting for Goldman, said in his opening statement that documents showed the LIA understood a good deal more than they now “pretend”.

In its court filings the bank says the LIA was the victim of an unforeseen financial depression, not of any wrongdoing by Goldman.

“Equity markets fell and underlying stocks tanked,” said Mr Miles, adding that the LIA was now seeking the return of money from an investment that had turned out badly for it.

The LIA’s claim hinges in part on its allegations that the trades were procured under “undue influence”. It specifically cites an internship that Goldman Sachs provided for Haitem Zarti, the brother of Mustafa Zarti, the LIA’s former deputy chief and a key decision-maker at the fund.

The LIA alleges that Mustafa Zarti’s willingness to do business with Goldman was influenced by the favourable treatment it was conferring on his brother in providing an internship. Neither side disputes that the internship took place.

Roger Masefield, a lawyer representing the LIA, said in his opening statement that in February 2008, Mr Kabbaj had flown Haitem Zarti from Morocco to a conference at Goldman Sachs’ expense.

According to the LIA’s claim, accommodation at the five-star Ritz Carlton was also paid for by Goldman, while Mr Kabbaj arranged for two prostitutes to spend the evening with them at a cost of $600, Mr Masefield said.

Blackberry SMS messages between Kabbaj and a woman named Michella were released to the court, in which Mr Kabbaj negotiates a rate with Michella.

Mr Masefield said it was “perfectly clear” that Michella was a prostitute and that Mr Kabbaj had secured the services of her and her friend for the evening.

Following the trip, Mr Masefield said Mr Kabbaj had reported back to a Goldman partner Driss Ben Brahim that it had been a great success, and he had managed to create very strong links to [Haitem Zarti] and his family … His brother is delighted.”

Neither Zarti is connected with the fund now. Reuters could not reach either of the brothers for comment.

In response to the allegations made in court, Mr Kabbaj told Reuters: “GS [the bank] or myself have never paid for any improper entertainment for clients including LIA and Haitem Zarti.

“All my expenses relating to LIA have been signed off by at least two senior partners and fully reimbursed by GS, including any restaurant in London and all LIA-related travel expenses to Morocco,” he added. He did not name any of the senior partners.

Goldman Sachs does not deny that it paid for some flights and hotels. A source familiar with the bank’s position said that Mr Kabbaj did not seek to expense the cost of the prostitutes to Goldman, and the bank did not know about it at the time.

Mr Kabbaj is not being called as a witness by either side. He told Reuters that he remains bound by a “very strong confidentiality agreement”. This was agreed with the bank as part of a settlement to a threatened claim that Mr Kabbaj pursued against the bank in late 2008.


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