Adding to the woes of The Goldman Sachs Group, Inc. (GS), on Tuesday, the bank was ordered to pay £200,000 ($321,820) by a judge in London’s High Court to Libyan Investment Authority (LIA), a sovereign wealth fund as part of the authority’s legal costs related to the case. Notably, LIA’s legal costs estimate to around $1 million and Goldman has been ordered to make the above-mentioned interim payment within 14 days.
The lawsuit, filed in Jan 2014, pertained to dealings made by the bank with the LIA in the earlier part of 2008, which led to substantial losses for the sovereign fund.
Previously, Goldman stopped its attempt to dispose a $1 billion lawsuit filed by LIA at London’s High Court. In Apr 2014, Goldman sought a summary judgment on the suit, but finally pulled back its request. Summary judgment means determination of a legal case without trial.
Therefore, the two parties were face to face in the court to discuss the legal costs spent related to the discarded application along with other issues.
Background
In May 2011, the LIA, 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 remained 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.
Bottom Line
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 faced a court hearing. The company believes that “the case is entirely without merit.” So it will defend the case strongly. Hence, we believe that the road ahead is not an easy one for Goldman. Apart from its concerns related to the pre-crisis period, the company faces tough macroeconomic challenges that continue to drag revenue growth.
Currently, Goldman carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the finance space include Arlington Asset Investment Corp. (AI) with a Zacks Rank #1 (Strong Buy), while Ladenburg Thalmann Financial Services Inc. (LTS) and Raymond James Financial, Inc. (RJF) sport a Zacks Rank #2 (Buy).
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