The U.S. Justice Department is investigating whether financial firms made improper payments to secure investments from sovereign wealth funds, according to two people familiar with the matter.
The probe, which grew out of a Securities and Exchange Commission inquiry, looks at firms including Goldman Sachs Group Inc. that sought business from Libya’s sovereign wealth fund before Muammar Qaddafi’s regime was toppled in 2011, said one of the people, who asked not to be identified because the investigation isn’t public.
The SEC put banks, hedge funds and private-equity firms on notice three years ago when it began scrutinizing how investment companies were competing to manage large pools of government-owned cash. Providing kickbacks or lavish gifts to employees of a sovereign wealth fund may violate U.S. anti-bribery law, which prohibits compensating government officials to win or keep business.
Investigators are focusing on whether firms used so-called placement agents to funnel improper payments, according to the people. The use of middlemen has drawn greater scrutiny in the wake of U.S. corruption cases in which money managers used kickbacks and campaign contributions to win contracts from public pension funds. The SEC adopted rules to curb so-called pay-to-play practices in 2010.
Practices at JPMorgan Chase & Co. (JPM:US), Credit Suisse Group AG (CSGN), Societe Generale SA (GLE), Blackstone Group LP (BX:US), and Och-Ziff Capital Management Group have also come under scrutiny, according to the Wall Street Journal, which reported the Justice Department’s investigation earlier today.
Spokesmen for Credit Suisse, Blackstone and Och-Ziff declined to comment on the investigation, as did John Nester at the SEC and Peter Carr at the Justice Department. Spokesmen for Goldman Sachs, JPMorgan and Societe Generale didn’t immediately respond to phone calls seeking comment.
The Libyan Investment Authority last month sued Goldman Sachs, claiming the New York-based bank exerted “undue influence” on its fund managers and made about $350 million on “worthless” derivatives trades. Goldman Sachs said it will fight the claims.
The LIA built up assets worth about $60 billion under Qaddafi, who was deposed and killed in a 2011 coup. The fund lost about $1.75 billion on structured financial products in 2007 and 2008, about $900 million of which was with Goldman Sachs, former LIA Chairman Mohsen Derregia said in June 2012.
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