LONDON — As an analyst at Goldman Sachs, Jaber George Jabbour learned the intricacies of sophisticated financial products by helping to create derivatives bets for big investors like pension funds.
After he was laid off during the financial crisis, he immediately put that knowledge to work advising public sector entities battling investment banks over expensive complex derivative trades that turned sour. He assisted Portugal in restructuring some trades, which contributed to the start of a parliamentary inquiry into various complex deals and a scandal that has cost many senior political officials their jobs.
Now his assistance is being sought by Libya’s sovereign wealth fund, which is suing his former employer in London over $1.2 billion in transactions that saddled the fund with huge losses but earned Goldman $350 million. The firm has refused to waive confidentiality agreements that would allow Mr. Jabbour, who worked with the fund, to cooperate. Goldman says that it is standard practice for employees to honor client confidentiality, even after they have left the firm.
Mr. Jabbour’s latest incarnation has emerged in documents related to the Libya suit and his work in Portugal. They shine a light on the complex relationship between bankers and public sector entities, a relationship both parties often seek to shield from public view. They show public sector officials undertaking deals about which they sometimes had limited understanding as a way to garner outsize returns or manage hefty debt loads. And they show banks more than willing to sell complex trades with high fees to allow them to do so.
For example, in June 2008, while at Goldman, Mr. Jabbour sent an email to a colleague about a big currency options trade the bank had sold to the Libyan Investment Authority. The authority, he said, did not understand the trade, which exposed it to potentially $100 million in losses.
“I think it’s a bit scary,” Mr. Jabbour said about the potential exposure in the email, which was reviewed by The New York Times.
A few months after sending that email, Mr. Jabbour was laid off by Goldman in 2009. “Decisions around individual departures are predicated on a number of factors, which can include individual performance as well as anticipated business needs,” a person briefed on his departure said.
Mr. Jabbour appeared to have left on good terms with the bank. A letter of recommendation written by Goldman and reviewed by The Times said Mr. Jabbour was “honest and trustworthy.”
Soon afterward, he founded his business, Ethos Advisory Services, now called Ethos Capital Advisors Ltd. Registered with the Financial Conduct Authority, Britain’s financial watchdog, its website has no links and shows only the firm’s central London address. It is unclear how successful the company has been.
“Having worked in banking, I noticed that banks took advantage of public sector entities when dealing in complex and structured transactions, including swaps and derivatives,” he told Público, a Portuguese publication, in 2013. “Therefore, I set up my business, Ethos, in 2009 to alert, assist and increase the awareness of public sector entities when dealing in these transactions.”
Mr. Jabbour confirmed his comments to the Portuguese publication but declined to comment further.
In December 2009, Ethos won a contract to work with Metro do Porto, a Portuguese state-owned train and subway company. Mr. Jabbour’s assignment was to untangle a pair of offsetting derivatives contracts with Goldman Sachs and Nomura that were meant to help manage interest rate risk on 126 million euros of debt but instead, at different points, incurred expected losses greater than the amount of the loan itself, according to documents released in the parliamentary inquiry related to the contracts.
At the time, Goldman and Nomura told Metro do Porto that it would cost it €26 million to cancel the identical elements of the contracts. Mr. Jabbour helped to restructure them, and instead of paying Goldman and Nomura, Metro do Porto earned back nearly €20 million to cancel the offsetting parts of the trades, according to emails and presentations made available as part of the inquiry.
Mr. Jabbour earned €1 million for his work for Metro do Porto.
It was a bruising battle. Mr. Jabbour wrote to various authorities in Portugal, including the Finance Ministry and the debt management authority, and to officials at the International Monetary Fund to warn them, among other things, that other complicated transactions, including certain so-called snowball swaps, were indeed snowballing, or incurring exponentially larger losses. Top officials lost their jobs.
Mr. Jabbour, now 32, moved to Britain from Syria in 2004 to attend Imperial College, according to a profile in Financial News’s 40 under 40 rising stars in investment banking published in 2012. After graduating, he worked at Houlihan Lokey, where he helped Iraq restructure its debt after the fall of Saddam Hussein. He then moved to Goldman Sachs as a senior analyst in the fixed-income division before founding Ethos.
At Ethos, in addition to representing Metro do Porto, he reviewed swaps in the county Seine-Saint-Denis in France and did some work in Italy, according to media reports in Portugal. More recently, Mr. Jabbour has become active in British Conservative Party politics and has created a new phonetic alphabet.
If the Libyan Investment Authority has its way, Mr. Jabbour will also play a role in the suit it has brought against Goldman.
At the heart of the issue is whether the authority knew what it was doing and whether Goldman’s relationship with it was unusually close. The authority contends Goldman exercised undue influence on it, preying on its inexperience to get it to buy $1.2 billion of risky derivative deals. Goldman has countered that the authority’s suit is “a paradigm of buyer’s remorse.” It also contends that the authority’s officials were seasoned bankers sophisticated enough to understand the trades and the risks inherent in them.
The Securities and Exchange Commission is also investigating aspects of the relationship. In 2011, the agency began examining Goldman’s efforts to win business from the authority. Among other things, it is looking at an internship that Goldman awarded to the brother of a Libyan official after the trades were executed. According to a witness statement filed by the authority, the internship was awarded in violation of Goldman’s own compliance policies. Entertainment, including boozy nights out with Libyan officials and paid for by Goldman bankers, according to the suit, are also under the microscope.
Goldman and the Libyan Investment Authority both declined to comment.
Documents from the case show that Mr. Jabbour was part of the dedicated team sent to assist the authority in 2007. He was not involved in the disputed trades — those were equity options and he worked in fixed income — but he appears to have established a relationship with some of the Libyan officials.
At one point, Mr. Jabbour offered to send a senior official at the Libyan fund five books on English law related to financial investments and derivatives, according to witness statements. It is unclear whether his offer was accepted.
When Goldman sold the authority two investments in private funds — investments that fared well, and which the authority is not contesting — he cheered the commitment in another internal email.
But a year later, when a Libyan official asked him to explain how options worked because Goldman had just sold the authority a large currency trade, Mr. Jabbour appears to have been worried. The trade was worth $100 million and through leverage could earn multiple times that investment. But the leverage also increased the probability that the authority would lose the whole investment, Mr. Jabbour’s email suggested.
When the official told his boss that the entire investment could be wiped out, his boss responded: “We are not running a casino.”
Mr. Jabbour conveyed that conversation in an email to the banker who was working most closely with the Libyan fund. Mr. Jabbour suggested that the trade be altered to substantially lower the risk.
Goldman restructured the trade, cutting the investment in half while keeping the chances of the authority recovering its initial investment unchanged, documents show.
The currency trade is not part of the Libya suit, but the authority appears to think that Mr. Jabbour’s observations could aid it in its case against the $1.2 billion in transactions it has called into question.