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Libya lawsuit Against Goldman Goes To Discovery Phase

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Earlier this year, the Libyan Investment Authority sued Goldman Sachs Group Inc (NYSE:GS) over $1.2 billion worth of derivatives trades made in early 2008. The LIA is alleging that Goldman took unfair advantage of its relationship with the  fund and its managers and exercised undue influence over it in the negotiations regarding the trades.

Details on the Libyan Investment Authority lawsuit

The Libyan Investment Authority suit against Goldman Sachs Group Inc (NYSE:GS) revolves around nine trades made from January through April 2008. The suit claims the over $1.3 billion worth of trades were unfairly structured to be highly profitable to Goldman, but leave the LIA highly exposed to losing everything.

In Monday’s news, the two parties agreed before a hearing that Goldman Sachs Group Inc (NYSE:GS) will disclose it’s earnings on the set of derivatives trades involved in the lawsuit by Libya’s sovereign wealth fund. Goldman will disclose its margin, profit and loss from the day the trades were booked as well as a month later. It will also disclose the reserves it set aside for each trade, the parties agreed during a case-management hearing in London.

The LIA is arguing that a typical margin for trades like its transactions with Goldman would be 5%, compared with the 20% to 40% Goldman charged for these particular transactions..

Goldman Sachs claims “buyers remorse”

Goldman Sachs Group Inc (NYSE:GS) says the case is one of “buyer’s remorse” and has noted that the authority is suing only for the unprofitable trades, not the ones that made it money. The investment bank’s lawyers don’t believe that profit is relevant to the accusations in the suit, specifically that Goldman exercised undue influence over the authority or that the terms of the trade were unfair.

Mixed ruling by judge

During Monday’s case management hearing, Goldman Sachs Group Inc (NYSE:GS) agreed to produce documents concerning 13 individuals who represented the core Libyan banking team, including 144 search words from January 2007 to September 2008.

The LIA then tried to include nine additional senior managers, including Michael Sherwood, the co-CEO of Goldman Sachs International. They also tried to expand the period for the documents and significantly boost the number of keywords.

The LIA argued that Goldman had already reviewed Sherwood’s emails for the longer period, according to other court documents, so doing so in discovery would not an undue burden on the bank.

The request was denied by the judge, who cited costs and that the original search would produce sufficient information. Goldman Sachs Group Inc (NYSE:GS) is only required provide documents related to the expanded group in a smaller time frame, and only documents relating to five key words instead of 144.

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Sheeraz Raza

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