The Goldman Sachs Group, Inc. (GS) stopped its attempt to dispose a $1billion lawsuit filed by the Libyan Investment Authority (:LIA), a sovereign wealth fund at London’s High Court. Previously the company looked for a summary judgment on the suit, but finally pulled its request back. Summary judgment means determination of a legal case without trial.
The lawsuit filed in Jan 2014, pertained to dealings made by the company with the LIA in the earlier part of 2008, which led to substantial losses for the sovereign fund.
In May 2011, the Libyan Investment Authority, which was once under the authority of the late Muammar Gaddafi, lost almost 98% of a $1.3 billion bet on currency movements and other complex trades handled by Goldman in 2008. However, Goldman booked profits of around $350 million on these equity-derivatives trades.
Since then, the sovereign fund’s ties with Goldman have been strained. The U.S. banking giant advised the fund to recoup the losses through structured-finance instruments or investment funds. However, these would have required LIA to invest more money through Goldman.
The lawsuit alleged that Goldman leveraged on its relationship with the fund and unfairly influenced the LIA officials who had limited financial and legal expertise, leading to the soured investments. Also, it accused Goldman of maintaining inadequate documents concerning the trades. The company often failed to provide timely information about the trades to LIA.
Gradually, when the reality of the complex trades came into light, it became apparent that Goldman had taken undue advantage of the trust LIA had placed on the Wall Street giant.
Goldman applied for the summary judgment request in Apr 2014 as it believed that the chances of LIA’s success in a trial were dim. However owing to the withdrawal of its request, Goldman will face a court hearing, which is scheduled in early October. The company believes that “the case is entirely without merit.” So it will defend the case strongly.
Currently, Goldman carries a Zacks Rank #2 (Buy). Some better-ranked stocks in the finance space include Select Bancorp, Inc. (SLCT), Piper Jaffray Companies (PJC) and Capital One Financial Corp. (COF). All these stocks sport a Zacks Rank #1 (Strong Buy).
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Zacks Investment Research
- Company Legal & Law Matters
- Libyan Investment Authority
- sovereign wealth fund