Och-Ziff Tackles Sovereign Wealth Corruption Issue

Chidem Kurdas

The U.S. Department of Justice and Securities and Exchange Commission have been investigating investments in Africa by funds belonging to the NYSE listed hedge fund company, Och-Ziff, for violation of the Foreign Corrupt Practices Act and other laws.

Libya’s sovereign wealth fund provided the money for these investments. According to Och-Ziff, in 2007 the sovereign wealth fund invested in some Och-Ziff vehicles and those in turn invested – directly and indirectly – in a number of companies in Africa.

Och-Ziff says it “generally only manages these funds and is not an investor in the funds.”

The presence of the Libya sovereign wealth entity suggests that the corruption investigation may be linked to assets transferred through Och-Ziff funds under the dictator Muammar Gaddafi. His family may have used the investments as a way to smuggle or launder money.

The firm has received subpoenas from the Justice Department and Securities and Exchange Commission from time to time since 2011. In the most recent comment on the matter Och-Ziff said that it is not able to determine how the investigation will end and what effect, if any, it will have.

The company acknowledged that an “adverse outcome could have a material effect” on financial performance. But any payments it may have to make in this connection can’t be determined at this time and therefore are not accounted as a liability.

Possibly in response to the investigation, the company has instituted a legal and regulatory compliance program to train employees. The program includes training “specifically targeted at ensuring the understanding of and compliance with the Foreign Corrupt Practices Act and, as applicable, other foreign anti-corruption laws and regulations.”

This training is mandatory for employees who work on private deals and with investors—such as sovereign wealth funds, one would expect.

The new government in Libya is seeking to recover some of the losses and payments the sovereign fund made during the Gaddafi regime, when a son of the strongman took charge of investment decisions. The sovereign fund is suing Goldman Sachs and the French bank, Société Générale. According to a recent article in Euromoney by Chris Wright, Libya is considering going to court against another five – unnamed – companies.

In the meantime, the SEC and the Justice department are investigating Goldman Sachs for a complex deal related to the Libyan loss, a deal that involved Palladyne International Asset Management. This appears to be the same or similar investigation as the one that Och-Ziff is tangled in.

The Euromoney story says Millennium Capital was also on the to-be-sued list but may not be any longer. It is possible that Millennium and Och-Ziff are among the five that Libya is considering as litigation targets.

Though the investigation involving Och-Ziff refers to events that go back to 2007, it was apparently first reported in February 2014 by the Wall Street Journal. (This paragraph has been changed to correct the date; the original post referred to a WSJ piece in April 2014.)

Och-Ziff shares, which were trading above $13 before the April WSJ article, are now trading below $12.


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2 Responses to “Och-Ziff Tackles Sovereign Wealth Corruption Issue”

  1. China Investing: Local or Foreign Manager? | HedgeFundSmarts Says:

    […] The deal involved the Libya sovereign wealth under now-dead dictator Muammar Gaddafi. His family may have used Och-Ziff funds as a way to smuggle or launder money. Click for details […]

  2. Och Beset by Foreign Corruption Lawsuits | HedgeFundSmarts Says:

    […] May, I reported in a HedgeFundSmarts post that Och-Ziff tackled the corruption issue by instituting a legal…to train employees. The program includes training “specifically targeted at ensuring the […]

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