How Goldmans cost Gaddafi a $1.3bn fortune

After losing the cash in just a handful of complex trades, the bank was told it had to offer some sort of compensation

Goldman Sachs managed to lose nearly all of the money it had been given to invest by the Libyan government, which eventually led the giant Wall Street bank to offer shares as compensation that would have effectively made Colonel Gaddafi one of its largest single investors.

The Libyan Investment Authority, a sovereign wealth fund worth tens of billions of dollars into which the Gaddafi administration poured the money it made from oil sales, handed over $1.3bn to the bank in 2008 with a mandate to invest in foreign currency markets and other structured products. The deal was struck months before the onset of the financial crisis, and sources close to the bank yesterday claimed that the LIA had initially been uninterested when Goldman told it that the value of the investment had lost several hundreds of millions of dollars.

But by early 2009 Goldman Sachs had lost 98 per cent of what it had been given, according to a report in The Wall Street Journal. It is believed that senior Goldman Sachs officials were then summoned to Tripoli, and were told that, after losing the cash in just a handful of complex trades, the bank would need to offer some sort of compensation. The bank alleges that its officials were physically threatened during meetings in Tripoli, but denies that it hired bodyguards for its staff.

Along with several other Western companies, Goldman Sachs was eager to get its hands on some of the newly available Libyan wealth after international sanctions were lifted against the country in 2004. The LIA was, until the start of the country's civil war this year, feted by the likes of HSBC, JP Morgan and Lehman Brothers as well as Goldman Sachs and other large companies in Europe and the United States.

When Colonel Gaddafi's security forces were ordered to put down pro-democracy demonstrations that began in February, the LIA's assets were frozen. Goldman Sachs is understood to still hold at least three different accounts containing LIA money; two in its asset management division and one in foreign exchange, a legacy of the initial $1.3bn.

The bank yesterday declined to give details of how much money it was holding, but said that the accounts had been frozen in line with worldwide efforts to throttle the Gaddafi regime.

Such was the scramble to mollify the LIA that talks on how Goldman should appease Colonel Gaddafi's government were held at the highest level of the bank – including the bank's CEO, Lloyd Blankfein, and Michael Sherwood, its leading executive in Europe, the Middle East and Africa. An offer was eventually made to the regime in Tripoli to take preference shares, a complicated financial instrument that pays a fixed dividend, but which does not necessarily give the holder an equity stake in the bank.

According to sources at Goldman Sachs, talks about how to recompense the Gaddafi regime lasted for more than a year and culminated in a meeting at Goldman Sachs' London headquarters on 23 June last year. Those sources, who declined to be named, said that the bank has had no contact with the Libyan regime or representatives of the LIA since that meeting.

Goldman Sachs and other companies that have LIA holdings could come under pressure to release the Libyan assets to the National Transitional Council, which a number of countries, including France and Qatar, have recognised as the legitimate government in Libya.

Start your day with The Independent, sign up for daily news emails
News
The two faces revealed by the ultraviolet light
newsScholars left shaken after shining ultraviolet light on 500-year-old Welsh manuscript
News
Rosamund Pike played Bond girld Miranda Frost, who died in Die Another Day (PA)
news
Arts and Entertainment
books
News
newsHow do you get your party leader to embrace a message and then stick to it? With people like this
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Marketing Manager - B2B, Corporate - City, London

£45000 - £50000 per annum + benefits : Ashdown Group: A highly successful, glo...

Neil Pavier: Commercial Analyst

£50,000 - £55,000: Neil Pavier: Are you a professionally qualified commercial ...

Loren Hughes: Financial Accountant

£45,000 - £55,000: Loren Hughes: Are you looking for a new opportunity that wi...

Sheridan Maine: Finance Analyst

Circa £45,000-£50,000 + benefits: Sheridan Maine: Are you a newly qualified ac...

Day In a Page

General Election 2015: The masterminds behind the scenes

The masterminds behind the election

How do you get your party leader to embrace a message and then stick to it? By employing these people
Machine Gun America: The amusement park where teenagers go to shoot a huge range of automatic weapons

Machine Gun America

The amusement park where teenagers go to shoot a huge range of automatic weapons
The ethics of pet food: Why are we are so selective in how we show animals our love?

The ethics of pet food

Why are we are so selective in how we show animals our love?
How Tansy Davies turned 9/11 into her opera 'Between Worlds'

How a composer turned 9/11 into her opera 'Between Worlds'

Tansy Davies makes her operatic debut with a work about the attack on the Twin Towers. Despite the topic, she says it is a life-affirming piece
11 best bedside tables

11 best bedside tables

It could be the first thing you see in the morning, so make it work for you. We find night stands, tables and cabinets to wake up to
Italy vs England player ratings: Did Andros Townsend's goal see him beat Harry Kane and Wayne Rooney to top marks?

Italy vs England player ratings

Did Townsend's goal see him beat Kane and Rooney to top marks?
Danny Higginbotham: An underdog's tale of making the most of it

An underdog's tale of making the most of it

Danny Higginbotham on being let go by Manchester United, annoying Gordon Strachan, utilising his talents to the full at Stoke and plunging into the world of analysis
Audley Harrison's abusers forget the debt he's due, but Errol Christie will always remember what he owes the police

Steve Bunce: Inside Boxing

Audley Harrison's abusers forget the debt he's due, but Errol Christie will always remember what he owes the police
No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat