Euromoney: A year ago, Euromoney reported that the Libyan Investment Authority was preparing litigation against Goldman Sachs for disastrous trades the US bank had put the Libyan sovereign wealth fund into in early 2008.

Nothing happens fast in Libya, and the top management of the fund has changed since our story. But on January 28, its lawyers lodged a claim at London’s High Court, accusing Goldman of “deliberately exploit[ing] the relationship of trust and confidence it has established with the LIA.”

Euromoney has seen the Particulars of Claim document lodged with the High Court by Simon Twigden, a partner and commercial dispute resolution expert at Enyo Law, on the LIA’s behalf. It makes savage reading for Goldman; it says that equity derivatives trades implemented by the bank lost the fund more than $1 billion while earning Goldman $350 million in profits.

After incurring these losses, Libya asked Goldman for a remedy. In May, 2009, the bank suggested that Libya recoup its losses by investing $3.7 billion in Goldman.

Matt Levine writes: You get the sneaking suspicion that there’s a terrible story here, that there’s a gambler’s-fallacy sense that, since you lost a lot of money on risky bets, the only thing to do is to put even more money on even riskier bets.
[…]
You see what’s going on there? Libya pays Goldman $3.7 billion and in return gets securities with “THESE SECURITIES ARE WORTH $5 BILLION” on the front of them. Guess how much those securities are worth? If you guessed $3.7 billion … there’s a decent chance that you’re too high? I dunno. If you guessed $5 billion you should be kept well away from money.

Libya said no; they “prodded Goldman to recoup their losses faster” and “also worried about whether it was wise to invest in Goldman given the collapse of Lehman.”