Media reports and the arrest of a Gabonese man in New York suggest developments in ongoing negotiations surrounding the bribery allegations against Och-Ziff Capital Management that have sapped the firm's recent earnings.
Samuel Mebiame was arrested Tuesday (16 August) and charged with bribing government officials in Niger, Guinea and Chad in exchange for mining rights on behalf of Africa Management Ltd., a joint venture that Och-Ziff was involved in, according to media reports.
Och-Ziff had previously revealed that it was under investigation by the Department of Justice and the Securities and Exchange Commission regarding possible violations of the Foreign Corrupt Practices Act and other laws in relation to investments in Zimbabwe, the Democratic Republic of Congo and Libya.
An Och-Ziff representative declined to comment.
Bloomberg cited people with knowledge of the matter as saying that Och-Ziff's ongoing negotiations with federal prosecutors could lead to a settlement under which an overseas business unit of the firm pleads guilty to charges in the case while its main business avoids conviction. The report also said that Mebiame worked with Och-Ziff on investments from its African Global Capital fund established in 2008.
On its recent earnings call, Och-Ziff executives said the firm had increased the legal stockpile it was holding in relation to settlement talks with the government to $414.3 million from the $200 million it had reported the previous quarter. The additions to the reserve fund contributed to the net loss of $78.6 million for the second quarter that Och-Ziff reported on 2 August.
“We have entered into advance settlement negotiations with the government, pinpointing the exact timing of the settlement remains difficult, but we are hopeful that we will be able to resolve this matter in the near term,” chief financial officer Joel Frank said on Och-Ziff's earnings call.
In a statement released in conjunction with the call, Och-Ziff also said that certain of the firm's managing directors were in discussions to purchase up to $500 million in perpetual preferred units that would fund investigation-related monetary settlement and other corporate activities. The units would carry a zero dividend rate for three years and then increase over time, but not be convertible into Class A shares.
The effects of the investigation were cited by KBW as a reason for its decision to downgrade its recommendation for Och-Ziff's stock in July, despite strong results from its credit unit. The firm's shares are traded on the New York Stock Exchange. They dropped to $3.89 per share from $10.93 a year ago.
The firm's credit unit has been a bright spot for the firm, chairman and chief executive officer Dan Och said on the earnings call. Och-Ziff offers distinct opportunistic credit funds, institutional credit strategies and real estate credit funds in addition to CLOs. Och said that credit products constitute a third of the firm's assets under management and that its Global Credit Opportunities fund had reported a 6.4 percent year-to-date net return through July.
Och-Ziff is one of the few publicly traded hedge funds and had $39.1 billion in assets under management as of 1 August. Founded in 1994, the New York- headquartered firm also maintains offices in London, Hong Kong, Mumbai, Beijing, Dubai, Shanghai and Houston.
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