Goldman Sachs employees had an "improper" relationship with a Gadhafi-era Libyan sovereign wealth fund, including a lavish trip to Morocco that involved "heavy drinking and girls," according to a U.K. high court filing.

The allegations were made in a lawsuit by the Libyan Investment Authority (LIA) that claims the global investment bank deliberately mislead the sovereign fund in order to make "substantial" profits of $350 million. Goldman denies the allegations. New details of the allegations were contained in witness statements filed at London's High Court on Monday, when both sides met in court for the first time.

A statement by attorney Catherine McDougall, who worked for the Allen & Overy law firm before being assigned to the LIA, claimed that the relationship between Goldman and the fund was too close and that the bank's employees had unfairly taken advantage of the LIA's lack of financial knowledge to sell it derivative products that it did not understand.

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The disputed derivative trades in early 2008 cost $1 billion, and carried a high degree of risk, but lost a substantial amount of value by the end of the year and expired "worthless" in 2011, the LIA says.

'Without merit'

A representative of Goldman Sachs (GS) told CNBC that the bank continues to believe this case is entirely without merit and intends to contest it vigorously as it moves through the legal process.

McDougall said she started her assignment in Libya shortly after the trades were made and quickly became surprised at the lack of knowledge and experience, especially with derivatives, that LIA employees had.

"They did not appreciate that the trades did not involve share purchases and they were completely synthetic products. I asked them where the due diligence was and they responded 'due what?' They said that they did not ask for any due diligence-there was no need to since Goldman had advised them to do these trades. They completely trusted Goldman," McDougall's witness statement said.

'Heavy drinking'

She said LIA employees had full confidence in Goldman executive director Youssef Kabbaj, who left the company in 2009.

"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," McDougall's statement said.

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"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. I thought that the level of closeness that Mr Kabbaj had built with the team seemed inappropriate and that the line between friendship and arm's length commercial dealings had clearly been blurred."

Kabbaj could not be immediately located for comment. His most recent employer Exotix, said he no longer worked there and didn't know his whereabouts.

'Red flags'

McDougall recalled being "shocked" by the situation, which she claimed raised a number of "red flags." She also disputed another witness statement made by Goldman banker Andrea Vella, which she quotes in her own statement, that LIA staffers were financially literate and did understand the risks associated with the derivative trades.

According to a transcript seen by CNBC, Judge Vivien Rose suggested that the case will be tried on narrower allegations surrounding the derivative trades rather than the claims of improper social conduct.

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The relationship between the LIA and Goldman broke down in July 2008 after a meeting between the two parties, according to the documents. McDougall's statement said that former LIA executive Mustafa Zarti confronted the bank's employees about the transactions in an angry tirade, in which he said that he thought Goldman had "screwed" the LIA.

The statement also said that in late August 2008, McDougall decided to leave Allen & Overy after a complaint by the LIA was made against her. She decided to leave the company before the disciplinary process began and said she felt quite traumatized by the experience.

The LIA asked in Monday's documents to schedule a 30-day trial in January 2016.