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In the Matter of Och-Ziff Capital Management Group LLC, OZ Management LP, Daniel S. Och, and Joel M. Frank

 
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OZ Management LP
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SEC Civil
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September 29, 2016
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In the Matter of Och-Ziff Capital Management Group LLC, OZ Management LP, Daniel S. Och, and Joel M. Frank
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In the Matter of Och-Ziff Capital Management Group LLC, OZ Management LP, Daniel S. Och, and Joel M. Frank, Admin. Proc. File No. 3-17595 (2016)
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The SEC’s case against Och-Ziff and OZ Management LP is the first time a hedge fund has been found liable for violations of the FCPA and is the most significant FCPA enforcement action against a financial institution to date.
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Financial Services/Financial Institutions
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Niger
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2007; 2008; 2009; 2010; 2011
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Unnamed government officials from Chad, the Democratic Republic of the Congo, Guinea, Libya, and Niger.
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OZ Management LP is a registered investment advisor and subsidiary of Och-Ziff Capital Management Group LLC (“Och-Ziff”), a New York-based hedge fund. OZ Management has been registered with the SEC as an investment adviser since 1997 and provides asset-management services to Och-Ziff investor funds.

According to the SEC, between approximately 2007 and 2011, Och-Ziff entered into a series of transactions and investments in which Och-Ziff paid bribes, through intermediaries, agents, and business partners to high ranking government officials in multiple African countries including Libya, Chad, Niger, Guinea, and the Democratic Republic of the Congo (“DRC”). The bribes were allegedly paid with the specific knowledge of a senior Och-Ziff employee, but the SEC claims that other Och-Ziff executives ignored red-flags and corruption risks to permit the transactions to proceed. A summary of the alleged transactions is provided below.

• In 2007, Och-Ziff secured a $300 million investment from the Libyan Investment Authority after allegedly paying bribes worth more than $3 million to Libyan government officials through a local agent.

• In 2007, Och-Ziff allegedly used $400,000 to pay a “deal fee” to a local Libyan agent despite being aware that of the high probability that some of those funds would be used as bribes to benefit a Libyan property development project into which Och-Ziff had invested $40 million.

• In 2007 and 2008, Och-Ziff allegedly loaned more than $86 million to a South African partner despite being aware of the high probability that at least a portion of those funds would be used to bribe foreign officials in Chad and Niger in exchange for mining rights in those countries.

• In 2008, Och-Ziff allegedly provided a $124 million loan to an entity affiliated with an Israeli businessman to purchase mining assets in the DRC. According to the SEC, with the knowledge of certain Och-Ziff employees, a significant portion of the loan was allegedly used to bribe high ranking DRC officials to secure mining assets for the Israeli businessman.

• In 2010 and 2011, Och-Ziff loaned the Israeli businessman $130 million, of which, $84.1 million was allegedly provided without and restrictions or oversight by Och-Ziff. According to the SEC, Och-Ziff employees knew that the Israeli businessman would use a portion of the funds to pay bribes to high ranking DRC government officials.

• In 2011, Och-Ziff allegedly purchased shares in a London-based oil exploration company from a South African partner to provide the South African partner with capital for other purposes. The SEC claims that the South African partner paid more than $1 million of those funds to a local consultant who then used the funds to bribe government officials in Guinea. According to the SEC, Och-Ziff failed to conduct sufficient due diligence on the use of those funds to prevent the payment of bribes.

The SEC asserts that, in most cases, the transactions described above involved the use of managed investor funds rather than Och-Ziff’s own capital. OZ Management, the registered investment adviser which manages the investor funds entrusted to Och-Ziff, allegedly authorized the use of investor funds in transactions in which bribes were paid to foreign government officials. According to the SEC, Och-Ziff categorized the transactions as investments or convertible loans despite the fact that Och-Ziff employees knew that the funds would be used to pay bribes. Furthermore, the SEC alleges that investor funds were used in self-dealing transactions to benefit Och-Ziff employees, Och-Ziff’s business partners, and Och-Ziff itself.

On September 29, 2016, the SEC announced that it had resolved its enforcement action against OZ Management for violations of the FCPA’s anti-bribery, books-and-records, and internal controls provisions. OZ Management was also charged with multiple violations of the Investment Advisers Act for allegedly defrauding clients and prospective clients. Och Ziff, Och-Ziff’s founder, CEO, and Chairman of the Board, Daniel S. Och, and Och-Ziff’s CFO, Joel M. Frank, were also named in the SEC’s action. According to the SEC’s order, OZ Management (alongside Och-Ziff) would be required to pay a total penalty of $199,045,167. The DOJ separately entered into a DPA with Och-Ziff which required the hedge-fund to pay an additional criminal penalty of $213,055,689.
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Anti-bribery (Issuer), Books and records (Issuer), Internal controls (Issuer)
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Cease and Desist, Disgorgement, Prejudgment Interest
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Och-Ziff and OZ Management LP were ordered to pay, jointly and severally, disgorgement of $173,186,178 and prejudgment interest of $25,858,989.
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199,045,167
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0
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Issuer
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U.S.
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United States
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Contract Procurement/Retention, Other Business Advantage
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Not stated.
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Wire/check
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Customs Broker or Agent/Consultant, Joint Venture, Sales Agent/Consultant, Subsidiary Company
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Not stated.
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Chad, Libya, Niger
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No
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No
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Cyprus, Malta, Switzerland, United Kingdom