Goldman Sachs hoodwinked Libyan officials in Colonel Gaddafi's ruthless regime into investing more than £800million (NZ$1613 million) by plying them with prostitutes, lavish parties and luxury trips, a UK court has heard.
Brokers at the world's most powerful investment bank paid for high-class escorts, business travel, five-star hotels and tickets to a Rugby World Cup game in a bid to generate business from Libya's giant sovereign wealth fund, it was claimed.
Details of the extravagant hospitality allegedly heaped upon officials from the Libyan Investment Authority (LIA), set up in 2006 to invest the country's oil riches after economic sanctions were lifted, emerged today.
Pop star James Blunt's society wife Sofia Wellesley is set to be called as a witness in the court case that will shine a light on Goldman Sachs' dealings with Libya's £46billion wealth fund.
A descendant of the Duke of Wellington, she worked as a personal assistant to Mustafa Zarti, the LIA's former deputy chief, at offices in Mayfair.
On the first day of a legal battle at London's High Court, Goldman Sachs was accused of exploiting the financial naivity and trust of Gaddafi-era officials into investing in complex financial instruments during the financial crisis.
Goldman allegedly wrongly took advantage of trusting officials at the wealth fund to persuade them to invest £846million with the bank between January and April 2008, most of which it lost.
Investments were linked to companies whose share price crashed, including US bank Citigroup and French energy giant EDF. Meanwhile, Goldman raked in 'eyewatering' profits of more than £200million for the trades.
Roger Masefield QC, representing the LIA, said the Wall Street giant courted financially illiterate LIA officials to lure them into making the complicated investments.
He said that one Gaddafi official, on discovering the vast losses, described Goldman as the 'bank of mafiosa'.
Masefield told the court that the deal had been spearheaded by ex-Goldman executive, Moroccan-born, MIT-educated banker Youssef Kabbaj. He had been told to 'stay a lot in Tripoli. It is important you stay super close to clients on a daily basis. Teach them, train them, dine them.'
Goldman agreed a £36,000 internship for Haitem Zarti, the brother of Mustafa, which the LIA claims was intended to influence decisions by the investment fund.
Papers handed to the court by LIA state: 'Mr Kabbaj took Haitem Zarti on holidays to Morocco on various occasions. Mr Kabbaj also took him to Dubai for a conference, with the business class flights and five-star accommodation being paid by Goldman Sachs.
'Documents disclosed by Goldman Sachs show that during that drip Mr Kabbaj went so far as to arrange for a pair of prostitutes to entertain them both one evening.'
Goldman also took groups of young LIA staffers on luxurious breaks to Morocco and Dubai which were 'on the very fringes of acceptable corporate hospitality', the court papers said.
LIA's skeleton argument to the court added: 'When all of that and additional trips were also offered to Haitem Zarti on an all-expenses-paid basis, together with the procurement of prostitutes and the tailor-made and highly coveted Goldman Sachs internship, they clearly were a step too far.'
Emails released by the LIA in its evidence cited Goldman Sachs describing the sovereign wealth fund as having 'zero-level' financial sophistication and one individual having 'delivered a pitch on structured leveraged loans to someone who lives in the middle of the desert with his camels'.
Wellesley was quoted in court documents as saying the LIA staff were 'a team of clearly naive and unqualified individuals... doing their best in the face of extremely intelligent, ambitious and experienced individuals'.
Mr Kabbaj is not being called to give evidence for Goldman, said Mr Masefield, who read out a settlement agreement stating the banker had received a £3.1million payout.
He said this was intended to stop thebroker's concerns about the trades being aired.
The LIA argued that the case was one of 'abuse of trust, undue influence and unconscionable bargain'.
It added: 'It most emphatically is not, therefore, as Goldman Sachs would have it, one of little more than 'buyer's remorse'; of a counterparty who like many others lost money as a result of the market crash in 2008 and now wants to rewind the clock.'
Goldman is disputing the claim, which was filed in 2014. It said it did not believe the internship influenced the LIA's decision to enter into the trades.
It said the investments the wealth fund undertook were done with full understanding and knowledge of its senior staff.
Goldman, whose lawyers will address the court tomorrow, said: 'The claims are without merit and we will continue to defend them vigorously.'
The case continues.