Goldman Sachs Sued for Selling Libya Billions in “Worthless” Options


Richard Smallteacher 
RINF Alternative News 

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 weretaken 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 Citigroupshares. 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.

The timing of the bets was particularly bad. Since the deals were struck in early 2008, just before the last financial crisis when most share prices tumbled, the Libyans lost their wagers.

“We think the claims are without merit, and will defend them,” Fiona Laffan, a Goldman Sachs spokeswoman in London, told Bloomberg news service.

However, the bank recently claimed that it had retrained its staff to ensure that customers are no longer blind sided by sales pitches for complex products. “For all of our employees, the experience of initiating, approving and executing a transaction for a client at Goldman Sachs is now fundamentally different,” Goldman claimed at its annual meeting last year.

Goldman Sachs is not the first Wall Street bank to be accused of taking advantage of naive foreign investors. Morgan Stanley was sued for selling bundled sub-prime mortgages to China Development Industrial Bank (CDIB) from Taiwan that they knew would fail. Even Standard & Poors (S&P), Wall Street’s top ratings agency, has been accused of helping banks to sell “collateralized debt obligations” that they knew were likely to go sour.

But this is not the first time that Goldman Sachs has been happy to help governments carry out dodgy deals. Back in 2001, Goldman reportedly charged Greece $300 million to engage on “‘blatant balance sheet cosmetics” to help the country join the European Monetary Union.

Photo (right) Andy Stern of SEIU International addresses protestors at a rally outside Goldman Sachs office. Credit: SEIU International. Used under Creative Commons license.

Members of the union were required to have government debt under 60 percent of gross domestic product and a budget deficit to gross domestic product ratio of under 3 percent. Unfortunately, Greece debt exceeded 100 percent and deficits were at 3.7 percent.

Goldman Sachs took advantage of a loophole that allowed countries to enter the EMU if they could demonstrate that they were lowering their debt and their budget deficit. To do this, Goldman Sachs sold Greece a “cross-currency swap” that gave the government cash up front in return for a big payment at the end of the loan period. The beauty of the arrangement was that since such currency swaps were permitted by the European Statistical Agency (Eurostat), the debt and deficit appeared to shrink. 

  • mayonnaise joe

    WTF – they managed 60Billion and didn’t know what a call option is? Bull****.

    • hifilij

      Yeah no kidding right? If the official `investment authority` is so financially illiterate, it`s no wonder the Quaddafi regime fell

      • retard

        no wonder the Quaddafi regime fell? we bombed his palace, as well as the rest of the fucking country to oblivion. postng comments like that.. holy shit your IQ must be so low

      • Tom

        Greed. Both of them.

  • nick geester

    Goldman taking advantage of those poor Libyans.

  • adamduke

    I know, right? Its like Libya was wearing slutty clothes, so they deserved to get raped!

    Are you guys in the financial community by chance? Or just have no problems with any ethics when it comes to making a buck, like those lovely, helpful gargantuan investment firms?

  • Popo

    Come on! GS gave them a great deal. For the example cited, GS sold call options at the money for $9 per call at strike of 255 to expire in 4 years. These were essentially worth at least $30-$35. If LIA bought stock, they would have lost 80% of the $200M, so essentially they would be left with $40M… I In other articles they say when expired, the contracts were worth $100M. Anyway you look at it, the suit is without merit…

  • Michael A

    It is inconceivable that someone with even a one-year evening distance learning certificate in finance does not understand that options become worthless if the underlying instrument does not rise above the strike price. They thought they would earn the rise in bank shares but risk nothing in case of a fall, and at no cost for this rather one sided deal? This article uncritically reproduces the most absurd arguments by the LIA as fact, in fact it’s so absurd that I even doubt the LIA has made that specific a claim. This is low quality journalism.