By LIZ RAPPAPORT And GIOVANNI LEGORANO
Goldman Sachs Group Inc.'s GS +0.51% headache in Libya didn't go to the grave with Col. Moammar Gadhafi.
Libya's sovereign-wealth fund said it is cooperating with the U.S. Securities and Exchange Commission in its continuing investigation into Goldman Sachs over the securities firm's dealings with the fund when Col. Gadhafi was in power.
Alessandro Bianchi/Press Pool Col. Moammar Gadhafi
The Libyan Investment Authority said in a statement that it also hired a law firm to discuss possible actions to recover losses it suffered from investments made in structured-finance products.
Before the financial crisis, Goldman and other financial firms sold complex investments to Libya as officials there looked for ways to put some of the fund's $60 billion in assets to work. Many of the investments plunged in value during the crisis.
An SEC spokesman declined to comment. The identity of the London-based law firm couldn't be determined. Goldman declined to comment.
The Wall Street Journal reported in May 2011 that the Libyan Investment Authority had lost 98% of a $1.3 billion bet on currency movements and other complex trades done with Goldman in 2008. The losses were devastating to the Libyan sovereign-wealth fund, and some of its executives demanded that Goldman find a way to recoup the fund's losses.
Goldman and Libyan fund officials went back and forth for months over several plans to make Libya whole on its investment, the Journal has reported. Many of the ideas Goldman presented involved structured-finance instruments or investment funds that would have required the Libyan fund to invest even more money through Goldman Sachs.
The discussions at Goldman about repairing its relationship with Libya escalated to include Chairman and Chief Executive Lloyd C. Blankfein, Goldman's then-Chief Financial Officer David Viniar and Michael Sherwood, the securities firm's top executive in Europe.
One of Goldman's proposals included a $50 million fee that the firm initially agreed to pay the Libyan fund, the Journal reported. The Libyan fund then planned to transfer that fee to an outside investment adviser called Palladyne International Asset Management BV, which was run at the time by the son-in-law of the head of Libya's state-owned oil company. The Libyan fund never reached any agreement with Goldman, and fighting broke out in Libya, leaving the problem unresolved.
The exposure of Libya's dealings with Goldman led the SEC to home in on the activities of the securities firm. The regulator was particularly interested in the $50 million fee.
The SEC's scrutiny of Goldman's dealings with Libya's sovereign-wealth fund centers on possible violations of U.S. anticorruption laws, the Journal reported. The Foreign Corrupt Practices Act bans U.S. companies from offering or paying bribes to foreign government officials or employees of state-owned companies.
The Libyan fund's estimated $60 billion in assets was frozen under international sanctions after rebels began to fight to topple Col. Gadhafi's regime. Many Libyan Investment Authority executives abandoned Tripoli, but new managers nominated immediately after Col. Gadhafi's fall made the fund's first-ever audit and reported fresh financial statements detailing the fund's first public record of its holdings, the Journal reported.
Like the leadership of the nation, the leadership of the Libyan Investment Authority has been in flux since Col. Gadhafi's death in October 2011. Libya has been struggling to rebuild after the bloody revolution that ended four decades of dictatorial rule.
The board of directors resigned in September 2012, citing what it said was incompetence of the fund's current management. That has meant that the Libyan Investment Authority hasn't been legally able to execute substantial trades or sell any holdings. The Libyan Investment Authority's current management has lost support of the government. Last month, the Libyan prime minister dismissed the chairman, but his refusal to step down has sparked a political crisis in Tripoli. Current management has said the dismissal is politically motivated and is illegal.
Even with a different form of turmoil, Libyan officials haven't let go of their desire to recoup losses they suffered on investments made by Col. Gadhafi's stewards of Libya's sovereign-wealth fund before the financial crisis.
People close to the Libyan investment fund said officials have authorized some former fund executives to give testimony to the SEC. The officials also agreed to provide documents and other data to U.S. regulators about the fund's ties to Goldman, these people said.
—Margaret Coker contributed to this article.
Write to Liz Rappaport at liz.rappaport@wsj.com
A version of this article appeared March 1, 2013, on page C1 in the U.S. edition of The Wall Street Journal, with the headline: Libya Fund Aids SEC Probe Into Goldman.
Source:
Libyan Fund Helping SEC in Goldman Probe - WSJ.com
http://online.wsj.com/article/SB10001424127887323978104578332553842543488.html
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