The US Department of Justice (DoJ) is demanding a guilty plea from Och-Ziff Capital Management over allegations that the firm paid bribes to obtain investments from a Libyan sovereign wealth fund, according to The Wall Street Journal and several other reports.
Securities regulators are also said to be seeking civil sanctions of $400 million based on the firm’s profits on the alleged bribes.
The charges follow a five-year investigation into whether the $42 billion firm knowingly bribed African government officials to get mandates from a sovereign wealth fund in Libya.
The WSJ reported that Och-Ziff’s lawyers argue that the company should not be held criminally liable and that the activity was not widely known at the firm “with profits from the activities in question totalling less than $100 million”.
The lawyers have tried to convince regulators to defer the prosecution agreement and make a deal where charges would be dropped if Och-Ziff “stays out of trouble”, people familiar with the negotiations told the WSJ.
An Och-Ziff spokesman declined to comment.
The investigation focuses on whether people at the firm knew that certain investments would be used for bribes. They centre around Michael Cohen, Och-Ziff’s former head of European investing who oversaw deals in Africa, and an analyst who worked for him. Cohen resigned from the firm in 2013.
Criminal charges have not been filed and Och-Ziff lawyers have argued that the firm should not be held liable as no one at the firm except Cohen and the analyst was aware of the payments.
Part of the investigation relates to broker’s fee paid by Och-Ziff for an investment by Libya that the Feds allege wound up in the hands of officials related to Muammar Gaddafi. Another aspect concerns loans Och-Ziff made that financed illegal payments to President Joseph Kabila’s government in the Democratic Republic of Congo.
Och-Ziff is considering using existing capital and contributions from executives to finance a settlement and not shareholder money. Executives on recent Och-Ziff earnings calls said they hoped the investigation would be over by the middle of the year, though they noted that they expect rising legal costs.
Och-Ziff is one of the largest and oldest hedge fund firms in the world. It was founded in 1994 with money from the Ziff family. It is also one of few publicly traded hedge funds. It went public in 2007 and has since been expanding into credit, real estate, energy, CLOs and weighing a move into business development companies.
The firm’s shares, which are traded on the New York Stock Exchange, dropped from $3.70 to $3.30 per share on Tuesday following the report.