Och-Ziff Sets Aside $200 Million for Settlement Amid Talks

  • Hedge fund firm reports unexpected loss in first quarter
  • Firm has entered into discussions with U.S. authorities

Och-Ziff Capital Management Group LLC, the hedge fund firm run by Daniel Och, reported an unexpected first-quarter loss as it set aside $200 million for a legal settlement that it’s now discussing with U.S. authorities.

The firm had a loss of $142.5 million, or 27 cents a share, compared with a distributable profit of $126.7 million, or 25 cents, a year earlier, the company said Tuesday in a statement. Excluding the charge, earnings of 11 cents a share missed the 13 cent average estimate of eight analysts in a Bloomberg survey.

The firm entered into settlement talks with the government after being in the cross hairs of investigators for at least five years over whether it knowingly paid bribes to get an investment from Libya’s sovereign wealth fund and to participate in deals elsewhere in Africa. The final settlement may exceed the amount set aside in the first quarter, which included $120 million from Och-Ziff’s revolving credit line, according to Chief Financial Officer Joel Frank.

“We are moving forward towards a resolution on this matter,” Frank said on a conference call Tuesday. “We believe it is probable that the final amount of the monetary settlement will be greater than the reserve, but at this point in time we are unable to reasonably estimate what that amount would be.”

The company will assess additional funding sources that may be needed when a final settlement is reached, said Frank.

The legal woes, coupled with a decline in assets and mediocre performance in the firm’s main multistrategy hedge fund, have taken a toll on the company’s stock. The shares fell 0.3 percent to $3.99 at 2:42 p.m. in New York trading, paring earlier losses but adding to a 37 percent plunge for the year. 

$2 Billion Outflows

The Justice Department is pushing for a guilty plea to criminal charges of bribery while securities regulators are seeking civil sanctions of as much as $400 million from Och-Ziff, the Wall Street Journal reported last month, citing people familiar with the matter.

Clients pulled a net $2 billion from the firm’s funds in the year through March, and an additional $1.5 billion since then through May 1, bringing assets to $42 billion.

The firm’s three main multistrategy funds all lost money this year, with the OZ Master Fund down 2.85 percent through April, the Asia fund lost 2.39 percent and a European fund declined 2.95 percent.

Och-Ziff was founded in 1994 with money from the Ziff family. Och, a former Goldman Sachs Group Inc. trader, took it public in November 2007 at the beginning of the financial crisis, a rare move in the world of hedge funds, most of which are private firms. The decision followed IPOs by Blackstone Group LP and Fortress Investment Group LLC the same year. All of them are trading below their IPO price.

While Och-Ziff hopes for a conclusion to the investigation by the middle of 2016, “it is possible that the timetable may take longer than we hope,” said Frank.

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