SEC Snares Two “Masterminds” Behind Och-Ziff Bribery Scheme
The SEC recently filed a lengthy civil complaint against two Och-Ziff executives: Michael Cohen, who headed Och-Ziff’s European office, and Vanja Barros, an executive responsible for Africa-related transactions, charging them with participation in a massive bribery scheme in Libya, Chad, Niger, Guinea and the Democratic Republic of Congo.
Last year, Och-Ziff settled with the Justice Department and the SEC, and agreed to pay fines and penalties totaling $412 million. Two executives, including Och-Ziff’s CEO and CFO, settled with the SEC at the same time.
The SEC needs to win a trial and if this case proceeds to trial, the SEC appears to have a golden opportunity to demonstrate its trial abilities. On the other hand, if the SEC loses this trial, it will be a real blow to its credibility and enforcement expertise. In other words, there is a lot at stake in this prosecution.
A civil complaint is a one-sided presentation of the evidence. Even with that caveat and perspective, the SEC has laid out a fairly strong case against the defendants demonstrating bribery, knowing violations, and large payments funneled to government officials. The two defendants will launch a vigorous defense and I am sure there are other responsible executives who will be forced to explain their own actions and their relationships with the defendants.
The scope of the defendants conduct, however, is not limited to one country or a series of events in a single country but cuts across a number of countries. The bulk of the conduct is set in Libya and the Democratic Republic of Congo.
The defendants built significant relationships with agents and intermediaries in Libya who established close contacts with Gaddafi’s family. In the DRC, the defendants relied on a joint venture partner who was given a 60 percent equity stake in the joint venture, and had a terrible reputation and record as the business person depicted in the movie Blood Diamond.
Relying on these questionable intermediaries, the defendants engaged in a series of illegal transactions involving large bribes and transactions.
For example, the complaint outlines a series of corrupt transactions:
- In 2007, Cohen with the assistance of an agent secured a $300 million investment by the Libyan sovereign wealth fund in exchange for the payment of $3 million in bribes.
- In 2007, Cohen arranged for a real estate development investment in Libya by paying a bogus transaction fee of $400,000 to an agent who in turn paid Libyan government officials to secure approvals and maintain the ongoing project.
- In 2007, Cohen and Barros paid a total of $96 million through the joint venture partner to another agent, who in turn funneled millions of dollars in bribes to DRC government officials to secure mining assets for the joint venture fund.
- In 2007, Och-Ziff made a convertible loan of $124 million and a separate $150 million investment involving the “blood diamond” partner that was used by the partner to bay bribes to DRC officials for mining assets. Cohen and Barros knew about the bribery scheme.
- In 2010, Cohen and Barros arranged for a margin loan of approximately $130 million from Och-Ziff hedge funds to investor funds controlled by the “blood diamond” partner with no controls or restrictions on the use of the funds and the “blood diamond” partner paid bribes to DRC government officials using these funds.
- In 2010, Cohen and Barros invested in an Och-Ziff fund that invested in a London-based mining fund that employed agents to pay bribes to government officials in Guinea for mining assets.
While these are the headline transactions, the SEC sets out evidence of emails and other documents and events that provide a damning picture of bribery and corruption.
There are always two sides to every story – but at the outset, the SEC’s case looks strong. Time will tell.