The Wall Street Journal reports:

In early 2008, Libya’s sovereign-wealth fund controlled by Col. Moammar Gadhafi gave $1.3 billion to Goldman Sachs Group to sink into a currency bet and other complicated trades. The investments lost 98% of their value, internal Goldman documents show.

What happened next may be one of the most peculiar footnotes to the global financial crisis. In an effort to make up for the losses, Goldman offered Libya the chance to become one of its biggest shareholders, according to documents and people familiar with the matter.

Negotiations between Goldman and the Libyan Investment Authority stretched on for months during the summer of 2009. Eventually, the talks fell apart, and nothing more was done about the lost money.

An examination of the strange episode casts light on a period of several years when Goldman and other Western banks scrambled to do business with the oil-rich nation, now an international pariah because of its attacks on civilians during its current conflict. This account of Goldman’s dealings with Libya is based on interviews with close to a dozen people who were involved in the matter, and on Libyan Investment Authority and Goldman documents.

Libya was furious at Goldman over the nearly total loss of the $1.3 billion it invested in nine equity trades and one currency transaction, people involved in the matter say. A confrontation in Tripoli between a top fund executive and two Goldman officials left the bankers so rattled that they made a panicked phone call to their bosses, these people say. Goldman arranged for a security guard to protect them before they left Libya the next day, they say.