Goldman Sachs employees have been accused of having an "improper" relationship with the Libyan sovereign wealth fund during the dictatorial reign of Muammar al-Gaddafi, according to a recent British court filing.

The case brought by the Libyan Investment Authority (LIA) claims that Goldman Sachs abused the financial illiteracy and trust of the Libyans, earning $350 million in profits as the Sovereign Wealth Fund was left with losses of over $1 billion. According to filing, the accusations recount a lavish trip to Morocco that involved "heavy drinking and girls."

In a lawsuit by the Libyan Investment Authority (LIA), the allegations claim the global investment bank deliberately mislead the Sovereign Wealth Fund in order to make "substantial" profits. Goldman Sachs naturally denies the allegations, but the evidence against the Wall Street giant is impressive. New details of the allegations were contained in witness statements filed at London's High Court in October 2014.

Assigned by an American law firm to the Libyan Investment Authority Attorney Catherine McDougall claimed the relationship between Goldman Sachs and the Sovereign Wealth Fund was abusive, It led directly to the bank’s employees taking unfair advantage of the LIA's lack of financial knowledge. The outcome were the sales of derivative products that the Libyans did not understand.

Carrying a high degree of risk, the disputed derivative trades in early 2008 cost $1 billion. They lost a substantial amount of value by the end of the first year and actually were worthless upon their expiration in 2011. This was the same year the dictatorial Gaddafi was assassinated by rebel leaders.

A Goldman Sachs representative told CNBC that the bank considers the case to be entirely without merit and intends to vigorously contest it. Starting her assignment in Libya shortly after the trades, McDougall was surprised at the Libyan’s lack of knowledge and experience with derivatives. She recalls in her witness statement, "They did not appreciate that the trades did not involve share purchases and they were completely synthetic products," McDougall said. "They completely trusted Goldman.”

LIA employees supposedly had full confidence in Goldman Executive Director Youssef Kabbaj, who left the company in 2009, and is accused of using sex and alcohol to violate business boundaries.

"They told me about their lavish trip to Morocco and that there was heavy drinking and girls involved and that the trip was paid for by Youssef Kabbaj mostly on his Goldman corporate credit card," McDougal said. "They also told me how Mr. Kabbaj would take them out in London for expensive nights out, again paid for on his Goldman Sachs credit card."

The relationship between the LIA and Goldman Sachs broke down in July 2008 after a meeting between the two parties. McDougall's statement said that former LIA executive Mustafa Zarti confronted the bank's employees about the transactions. The Libyan angrily accused the traders, stating that he thought Goldman Sachs had "screwed" the LIA.