Och-Ziff Unit Said to Plan to Plead Guilty Over Bribes

LAGOS (Capital Markets in Africa) – Och-Ziff Capital Management LP, the largest publicly traded hedge fund firm in the U.S., has agreed to enter into a deferred-prosecution agreement and have a subsidiary plead guilty in a federal probe into millions of dollars of bribes funneled to African officials, according to a person familiar with the matter.

The admission of guilt is part of a settlement with the Justice Department and the Securities and Exchange Commission after a complex five-year investigation into graft worth hundreds of millions of dollars, shell companies, oil and diamonds. The company has set aside more than $400 million for fines and penalties.

Och Ziff’s OZ Africa Management GP unit is scheduled to appear Thursday in federal court in Brooklyn, New York, to face felony charges before U.S. District Judge Ann Donnelly, according to court records. Och-Ziff will be arraigned a half hour later before Donnelly, court records show.

A spokesman for Och-Ziff didn’t respond to a request for comment.

Investors reacted positively to news of the deferred prosecution and to the prospect that Och-Ziff might be close to resolving the investigation. The company’s shares were up 8.3 percent to $4.35, a six-month high, at 2:04 p.m. in New York.

The firm’s London-based investing arm was headed by Michael Cohen, who leftin 2013. He worked on mining deals that kicked back millions of dollars in bribes to African officials, according to the person familiar with it, adding that bribes were paid to Libyan officials as well. The business came at a price through a web of fixers, enablers and shell companies.

Cohen and several others individuals connected with Och-Ziff are still under investigation and could also face charges, the person familiar with the matter said. The parent company will sign a so-called deferred-prosecution agreement, meaning that ordinary operations can continue and charges would be dropped if it stays out of trouble for a period.

Gordon Poole, a spokesman for Cohen, declined to comment. Another spokesman for Cohen, Billy Clegg, also declined to comment.

Gabonese Fixer
Last month, Brooklyn prosecutors charged a fixer from Gabon working as a consultant for Och-Ziff with bribery for obtaining rights to African mineral concessions.

Och-Ziff’s focus on Africa came at a time that the continent was being hailed as the next big target for investors. The unprecedented growth in China and scarcity of capital elsewhere drove commodities prices to record highs, putting a spotlight on Africa’s vast untapped resources.

Cohen, 45, joined the firm in the late 1990s and moved to London to set up the firm’s European operations. The firm soon had nearly a quarter of its portfolio under his direction, growing from a startup founded by Goldman Sachs alum Daniel Och with seed money from the billionaire Ziff brothers to a $30 billion portfolio.

In 2007, as oil and copper were trading at record highs, Cohen began to look to the untapped oil fields and copper reserves of sub-Saharan African hailed as a frontier market.

Diamond Dealer
Cohen’s investments involved Dan Gertler, an Israeli diamond dealer and billionaire with deep ties to the Democratic Republic of the Congo, through a newly created joint venture, Africa Management Ltd, in 2008.

The firm partnered with South African businessman Mark Willcox and Walter Hennig, who had decades of experience in Africa, but not without controversy.

In the 1990s, Hennig started a diamond trading business in Angola during its bloody civil war, a deadly byproduct of the Cold War. Rebel factions exploited unregulated diamond mines to trade so-called “blood diamonds” for arms.

Willcox, the chief executive officer of Africa Management Ltd., had invested in a number of mines in Africa through the firm he ran, Mvelaphanda Holdings. Both are known for hosting lavish parties in their Cape Town mansions.

Representatives for Willcox and Hennig didn’t respond to requests for comment.

A spokesman for Gertler’s Fleurette Group said that the firm “vigorously contests any and all accusations of wrongdoing in any of its dealings in the DRC including those with Och Ziff. The Fleurette Group and Dan Gertler strongly deny the allegations announced today, which are motivated by a hedge fund trying to put behind it problems sparked by people that have nothing to do with Fleurette.”

Gem Trade
Gertler, whose grandfather co-founded Israel’s diamond exchange, first arrived in Congo 20 years ago on the hunt for rough diamonds for his family’s bustling gem trade. His estimated wealth is $2.2 billion, according to the Bloomberg Billionaire’s Index.

Through the years, Gertler knitted a close friendship with Joseph Kabila, who became president of the embattled African country at age 29 after his father was assassinated in 2001. The relationship opened the door for his companies to invest in cobalt and copper mines and purchase huge oil blocks along the Ugandan border.

Gertler has acquired stakes in small, listed companies in Canada and London in order to get mining and drilling licenses for pennies on the dollar through a web of shell companies based at offshore tax havens under the umbrella of Fleurette Group.

Oil Reserves
Och-Ziff funded two of Gertler’s more controversial deals in Congo through a series of loans that gave the Israeli billionaire control of vast oil reserves and copper and cobalt mines.

Both deals involved myriad shell companies and transactions that created a convoluted paper trail and required millions of dollars in bribes, according to the person familiar with the matter. Och-Ziff paid the bribes through Gertler’s sprawling network of shell companies and contacts in Congo, the people said.

Och-Ziff has been plagued by redemptions since the firm disclosed it was under investigation in regulatory filings. Clients pulled $3.1 billion from Och-Ziff’s funds in the 12 months through June, and an additional $3 billion through Aug. 1, reducing assets to $39.1 billion.

The legal woes, decline in assets, and the mediocre performance in the firm’s main multi-strategy hedge fund have taken a toll on the company’s stock, which has fallen about 64 percent in the past year.

Source: Bloomberg Business News