Shortly before the financial crisis, the new sovereign investment fund of Libya gave Goldman Sachs $1.3 billion to play with. The bank used the money on stock options at a variety of international banks and a basket of currency bets. Roughly two years later, the investment was valued at $25.1 million, a drop of 98 percent. According to The Wall Street Journal, this is what happened next:
Officials at the sovereign-wealth fund accused Goldman of misrepresenting the investment deals and making trades without proper authorization, according to people familiar with the situation. In July 2008, [Mustafa] Zarti, the fund’s deputy chairman, summoned [Youssef] Kabbaj, Goldman’s North Africa chief, to a meeting with the fund’s legal and compliance staff, according to Libyan Investment Authority emails reviewed by the Journal. One person who attended the meeting says Mr. Zarti was “like a raging bull,” cursing and threatening Mr. Kabbaj and another Goldman employee. Goldman arranged for security to protect the employees until they left Libya the next day, according to people familiar with the matter.
Tip-top Goldman bosses, including CEO Lloyd Blankfein and finance chief David Viniar, scrambled to try to figure out how to fix the relationship with Libya and maintain access to its vast fortune. They also feared that word of the massive loss would spook other sovereign funds, so they offered the nation several ways to recoup the money. The last of the offers was made in a June 2010 meeting. Eight months later, the United States froze some $37 billion in Libyan assets as dictator Muammar Qaddafi turned on his rebelling people. Included in that large amount was what was left of Libya’s investment with Goldman.
