After Goldman Loss, Libya's SocGen Case Cloaked in Secrecy
(Bloomberg) -- The Libyan Investment Authority’s $1.5 billion lawsuit against Societe Generale SA, packed with allegations of corruption and bribery, promises to be one of London’s most dramatic trials of 2017 -- and much of it will happen in secret.
The case, which begins Wednesday only six months after the sovereign wealth fund had a similar lawsuit against Goldman Sachs Group Inc. thrown out, will take place against a backdrop of U.S. investigations of banks and continued civil unrest in Libya. Three of the lender’s senior executives will testify behind closed doors, fearing incrimination in the American probe, and as many as 50 Libyans will have their identities shielded to protect their families back home.
Secrecy on this scale is "rare, and the court wouldn’t have taken these decisions lightly, but not every piece of banking litigation has a live criminal investigation going on at the same time," said Simon Hart, a lawyer specializing in financial litigation at law firm RPC.
The LIA, a $60 billion oil-wealth fund set up under former dictator Moammar Qaddafi, is fighting to recoup billions of dollars in losses on deals that soured during the global financial crisis a decade ago. Both lawsuits have been affected by the civil war that erupted following Qaddafi’s fall, with representatives of two rival governments both claiming control of the fund and its cases in London.
While the Goldman Sachs case was tossed out following a two-month trial last year, the Libyans say in court documents that the disputes are based on different legal issues and facts.
Where the Goldman lawsuit was about undue influence, the SocGen case is about bribery. At the center of the dispute is a $58 million payment made by the French lender to Libyan businessman Walid Al-Giahmi. About $24 million of that payment went to a single official that has been granted anonymity, according to the LIA’s court filings.
The LIA sued SocGen, Al-Giahmi and Leinada, a Panamanian company he controlled, in 2014 over payments relating to trades worth $2.1 billion. It claims its employees were paid bribes and intimidated into entering the trades.
Spokespeople for SocGen and the LIA declined to comment on the lawsuit. Kathryn Garbett, a lawyer for Al-Giahmi at Mishcon de Reya in London, also declined to comment. The trial, which was scheduled to start Tuesday, was pushed back one day, George Prassas, a spokesman for the wealth fund, said in an email this morning.
The Goldman Sachs trial riveted London’s financial community last year with revelations about internships and prostitutes. The extent of the allegations against SocGen isn’t yet clear as many of the filings have been sealed or redacted ahead of the trial because of confidentiality issues.
Al-Giahmi, who was friends with the son of Moammar Qaddafi, was willing to disclose the names of 50 individuals, some of whom may have received payments, if their identities were protected, according to a March 2016 ruling by Judge Nigel Teare.
The LIA sought to have the subsequent confidentiality restrictions eased, citing difficulties preparing for trial. SocGen also said the arrangement inhibited its ability to defend itself.
But Teare refused to have the restrictions lifted following testimony by security experts, including Joseph Walker-Cousins, a former head of the British Embassy’s office in Benghazi.
A court summary of his evidence said "those perceived as associated with the former Qaddafi regime or identified as recipients of misappropriated Libyan state funds are particular targets for murder or other violence and mistreatment."
Other probes have also contributed to the layers of secrecy at the trial.
The U.S. Department of Justice is investigating a plethora of banks, private equity firms and hedge funds that may have violated anti-bribery laws while dealing with the LIA. That investigation is progressing as divisions in Libya have hardened between the factions fighting for control of the country.
During the Goldman Sachs trial, the fund said it was misled into signing derivative deals it never properly understood. The trades ended up being virtually worthless after the company shares they were linked to fell in the 2008 crisis.
To secure the deals, the LIA said the New York bank bought gifts, paid for extravagant entertainment and offered an internship to a Libyan official’s brother. One former Goldman Sachs salesman, Youssef Kabbaj, was accused by the LIA of hiring call girls at a conference with a Libyan contact.
But Judge Vivien Rose ruled in October that "their relationship did not go beyond the normal cordial and mutually beneficial relationship that grows up between a bank and client.”
Goldman Sachs and Societe Generale were in competition for investments from the LIA, which was only about a year old in 2008 when many of the deals were agreed to, according to evidence from the Goldman trial. The Libyan fund also made bets with hedge funds Millennium Global Investments Ltd. and Och-Ziff Capital Management Group as it sought to deliver quick returns and emulate more established sovereign wealth funds.
The LIA’s former deputy chief executive officer, Mustafa Zarti, may again be at the center of the dispute, as he was in the Goldman Sachs case. A confidante of Qaddafi’s son Saif, Zarti was accused of threatening Goldman Sachs bankers. He is now alleged by the LIA to have been involved in corruption related to the SocGen deals.
“This is a false allegation for obvious self-serving reasons without any proof,” his spokesman Werner Beninger said in an email. Zarti, who fled Libya after Qaddafi’s fall, didn’t participate in the Goldman Sachs court case and won’t testify in the SocGen trial.
The LIA believes its chances this time around are bolstered by the bribery allegations, and even tried to resurrect its case against Goldman in November by adding similar accusations.
Payments to the Panama-based company owned by Al-Giahmi had no real purpose and were kept secret from the LIA board, according to the fund’s initial filings.
They were made with the aim of “influencing the LIA’s decision to enter into each and every one of the disputed trades through the payment of bribes,” the LIA said in the documents.
The case is The Libyan Investment Authority v. Societe Generale S.A & Ors, High Court of Justice, Queen’s Bench Division, Commercial Court.