Litigation-related issues continue to mount for
The Goldman Sachs Group, Inc.
). Recently, the Wall Street giant was sued by The Libyan
Investment Authority (LIA), a sovereign wealth fund related to
investments worth approximately $1 billion. The lawsuit was filed
at London's High Court and it pertained to dealings made in the
earlier part of 2008, which led to substantial losses for the
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In May 2011, the Libyan Investment Authority - once controlled by
Moammar Gadhafi - lost almost 98% of a $1.3 billion bet on
currency movements and other complex trades transacted with
Goldman in 2008. Consequently, the wealth fund demanded that the
bank compensate its losses.
Since then, the sovereign fund's ties with Goldman have been
under strain. 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.
Additionally, in 2011, Goldman had run into trouble with the
Securities and Exchange Commission (SEC) regarding its exposure
by the Libyan fund. The U.S. bank was under scrutiny over its
compliance with the Foreign Corrupt Practices Act, which prevents
U.S.-based companies from paying or offering to pay foreign
government officials bribes in return for business advantages.
The SEC is still investigating the $50 million fee Goldman
initially agreed to pay to help the LIA recover its losses,
although the transaction could not be completed as political
unrest erupted in Libya.
The lawsuit adds to the differences between Goldman and the
sovereign-wealth fund of Libya. We also believe that the recent
lawsuit will dent Goldman's reputation and legal expenses will
continue to drag its financials in the coming quarters. However,
investors who have incurred losses in such investments should
At present, Goldman carries a Zacks Rank #2 (Buy). Other banking
majors worth considering include
Bank of America Corp.
Fifth Third Bancorp
). All of these have the same Zacks Rank as Goldman.