Och-Ziff Plea Halts Rise of Hedge-Fund Billionaire’s Protegeby and
Michael Cohen led the firm’s investments in Europe and Africa
Bribe investigation coincided with retirement from the fund
At the turn of the century, hedge-fund billionaire Daniel Och sent protege Michael Cohen, still in his twenties, to spearhead Och-Ziff’s expansion into Europe. Cohen’s team bet so successfully on equities and corporate deals that less than a decade later he was able to buy a 900-acre estate in the English countryside.
A relentless investor with little patience for small talk, he was always looking for his next score, say people who know him. That led him, in 2007, to begin a series of bets promising outsized profits and, as it turned out, even larger risks that shook Och-Ziff Capital Management LP to its core.
Cohen’s foray into African oil and mining, amid a spectacular commodities boom, has put him at the heart of the biggest investigation by U.S. authorities against a hedge fund since they forced Steve Cohen’s SAC Capital Advisors to shut its doors in 2013. Och-Ziff reached a settlement with the U.S. Justice Department and the Securities and Exchange Commission, paying more than $400 million and admitting Thursday that a unit conspired to bribe officials in the Congo in order to win business. In all, the government outlined more than $100 million in bribes.
From 2007 through 2011 Och-Ziff paid bribes through intermediaries to high ranking government officials across Africa, according to the SEC order. "These bribes were paid with the specific knowledge of a senior Och-Ziff employee who was the head of Och-Ziff Europe (“Och-Ziff Employee A”)," the SEC said in the order. Michael Cohen headed Och-Ziff’s European investing during that period.
Details of Cohen’s history, investing style and his foray into Africa are based on U.K. court filings and land records, his own testimony, fund documents and interviews with more than a dozen people who either know him or worked with him directly. None of the people wanted to be identified, citing Cohen’s desire for privacy or the U.S. investigation. U.S. prosecutors are continuing their investigation. Cohen hasn’t been charged.
"Michael Cohen has an unblemished reputation built over the course of a career spent creating value for Och-Ziff’s investors," Ronald White, Cohen’s lawyer, said in an e-mailed statement. "We are confident that, when all the facts are known, it will be clear that he has done nothing wrong.”
After getting a degree in economics at Bowdoin College in Maine, Cohen had stints at Franklin Mutual Advisory as an equity research analyst and with Credit Suisse First Boston as an investment banking analyst. He joined Och-Ziff in 1997 and quickly became a personal protege of Och’s, according to testimony Cohen gave in 2010 in an unrelated London intellectual-property dispute involving the firm.
In Europe, Cohen preferred meeting at Och-Ziff’s offices tucked behind London’s bustling Oxford Circus shopping hub. As one of Europe’s most sought after investors, Cohen could afford to call the shots. Cohen hired the best talent, demanded long hours from his staff and forged a strong relationship with other Wall Street bankers, helping ensure he had access to deals and information, according to seven people who worked with him.
He was a success, enriching both Och-Ziff and himself. The European investment fund Cohen oversaw quadrupled between 1999 and 2012, vastly outperforming 171 percent average return in hedge funds globally, as measured by the HFRI Fund Weighted Composite Index. In 2013, Cohen appeared on the annual Sunday Times list of the wealthiest U.K. hedge fund managers for the first time, with an estimated wealth of 300 million pounds. He continues to be on that list.
Months before setting up the African funds that would become the focus of the investigation by U.S. authorities, Cohen, bought a 15 million pound ($20 million) English country estate outside London. Called Ewhurst Park, the more than 900-acre spread includes a sprawling main house, cottages, a church, a large lake with ducks, a boathouse, bridges, wooded areas, fountains, and formal gardens. He also owns a house in Chelsea, one of the most expensive districts in London.
Cohen also embraced a favorite pastime of English aristocrats -- duck shooting. He frequently went on hunts, owned his own shotguns, and bragged about the fine workmanship of his gunsmiths, according to one person who went on shoots with him.
“I have forgotten a lot of my ‘American,’” Cohen told a London court in the 2010 case. He also noted that about half of Och-Ziff’s total "assets are invested outside the United States, and 40 percent of our investors are resident or based in Europe.”
Cohen went from shooting ducks in English moorlands to hunting mineral and oil deposits in Africa after he was introduced to Mark Willcox, a South African whose firm had an alliance with a budding oil company called Ophir Energy Plc. With Ophir scooping up concessions across Africa, Och-Ziff invested and a partnership was born, Ophir filings show.
Willcox declined to comment.
A separate joint venture invested in coal in South Africa, uranium in Niger and copper in Congo. Willcox and other South African partners provided access to the projects and Och-Ziff supplied the cash. The venture even set up an oil company of its own. Michael Cohen was a member of the four-person investment committee that approved all deals, according to two internal memos.
Not long after, Willcox brought yet another person seeking Cohen’s backing to his office: Israeli billionaire Dan Gertler, according to a person familiar with the events. Gertler had forged a friendship with Democratic Republic of Congo’s President Joseph Kabila, both of them have said.
Och-Ziff’s African venture would lend Gertler’s company the money to buy control of a promising copper company, which had run into legal trouble in Congo, investment documents show. Cohen structured the deal so that there was no downside for Och-Ziff, according to a person familiar with the transaction. If Gertler’s business took off, Cohen could convert the loan into equity. If not, Och-Ziff could just call the money. Cohen never went to Congo to look at the assets, according to one of the people.
A spokesman for Gertler’s Fleurette Group said that the firm “vigorously contests any and all accusations of wrongdoing in any of its dealings in the DRC including those with Och Ziff. The Fleurette Group and Dan Gertler strongly deny the allegations announced today, which are motivated by a hedge fund trying to put behind it problems sparked by people that have nothing to do with Fleurette.”
Barnabe Kikaya Bin Karubi, chief diplomatic adviser to Kabila, said the presidency had not yet seen the judgment and would "wait to see it if before making any meaningful comment."
Och-Ziff’s entanglements in Africa went beyond just Congo. The Och-Ziff employee who headed European investing didn’t report or investigate information in 2008 that a $150 million investment was being diverted to a political party in Zimbabwe and that it was being used to bring arms into the country.
He also showed his enthusiasm after a meeting with Libyan leader Moammar Qaddafi’s son in Vienna, in which he sought to bring to Och-Ziff a $300 million investment from Libya’s sovereign wealth fund.
"The meetings are amazing," he told Och in an e-mail cited by the SEC. "They have 77 billion, half in cash and no idea who to give it to. I haven’t been this excited in a while.”
The environment got tougher, though. In late 2008, the global financial crisis hit with Lehman Brothers’ bankruptcy. Commodity prices plunged, then clawed back, before turning resolutely down in 2011.
On March 19, 2013, without any explanation, Och-Ziff announced Cohen’s departure from the firm in a regulatory filing. Investors were told Cohen had retired, according to people with knowledge of the situation.
In its annual report published in 2013, Och-Ziff said that the policies and procedures it had put in place to prevent violations of U.S. foreign bribery laws “may not be effective in all instances.” A year later, Och-Ziff became more specific. It said in its annual report that, beginning in 2011, it had received subpoenas from the SEC and information requests from the Justice Department in connection with an investigation into possible anti-bribery violations. The probe related to an investment from a foreign sovereign wealth fund in Och-Ziff, and the hedge fund’s investments in “a number of companies in Africa,” it said.
For Cohen, the evidence that the investigation would lead to a major fine gathered pace as he was making preliminary plans to start his own hedge fund with at least three partners, according to two people who know him. Cohen was interviewed by U.S. enforcement officials more than once, the people said. Then, during a visit to New York in August 2015, Cohen informed his partners that he had changed his mind on the hedge fund. He wanted to focus on his retirement, a person familiar with his thinking said.