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Och-Ziff's Plea Deal May Be Upended With Restitution Claim

Updated on
  • Investors challenge deal to end U.S. charges over African mine
  • Och-Ziff paid $413 million in 2016 to end U.S. bribery probe

An investor group is demanding as much as $600 million in restitution from Och-Ziff Capital Management Group LLC over lost mining rights in a move that might upend the hedge fund’s deal to settle U.S. charges that it was involved in a sprawling African bribery conspiracy.

The request Tuesday from 50 investors in Africo Resources Ltd. raises doubts over whether Och-Ziff, which has $33 billion under management, can put the yearslong corruption saga behind it. U.S. District Judge Nicholas Garaufis will now have to consider whether to order Och-Ziff to pay up or set a hearing to investigate Africo’s claims.

An Och-Ziff unit pleaded guilty in September 2016 to participating in a bribery conspiracy to help acquire mining assets in several African countries, including the Kalukundi copper and cobalt mine in the Democratic Republic of Congo that Africo had exclusive rights to. Och-Ziff agreed to pay $412 million to resolve investigations by prosecutors and regulators.

But in another snag, the $213 million criminal penalty the hedge fund paid the Justice Department has already been deposited with the U.S. Treasury, instead of being held in escrow before sentencing as prosecutors agreed, a lawyer for the investors said.

"The Department of Justice has abdicated its legal obligations," a lawyer for Africo shareholders said in a memo to the court. Instead it puts “its own interests -- and those of the defendant -- ahead of victims."

Garaufis is preparing to sentence the hedge fund. He sharply rebuked prosecutors earlier demanding to know why only one person was charged in the sprawling bribery probe while the hedge fund got a deal under which the charges will be dismissed in three years if it abides by the agreement. 

Congo Backs Billionaire Gertler After Och-Ziff Allegations

"I’m sick and tired of lawyers from white-shoe law firms marching into my courtroom and getting a deferred-prosecution agreement for their clients," Garaufis said. "We have a law, so someone should go out and enforce it."

Jonathan Gasthalter, a spokesman for Och-Ziff, said the suit has "no merit."

"The claimants have failed to provide any legal basis to support their position and this is nothing more than a transparent attempt to receive an undue payment," he said.

John Marzulli, a spokesman for Brooklyn U.S. Attorney Richard Donoghue, declined to comment.

As part of the 2016 accord, OZ Africa Management GP pleaded guilty to conspiracy to bribe DRC officials. The fund paid $213 million to end the criminal probe and $199 million to the U.S. Securities and Exchange Commission to settle civil claims.

Funds’ Victims

Africo shareholders said in the letter to the judge that while prosecutors and the FBI initially recognized them as victims of the fund’s fraud who were entitled to restitution, that changed after Och-Ziff started a lobbying campaign. Och-Ziff also threatened to pull out of the deferred-prosecution deal if it has to pay restitution, a lawyer for Africo said.

"The agreements the government struck did not come close to holding Och-Ziff accountable," Morris Fodeman, a lawyer for the investors, wrote in the memo. "Despite the fact that Och Ziff used its economic might to pay more than $100 million in bribes to judges and other government officials so that it could exploit economically challenged third-world countries and victimize the Africo owners, Och Ziff astonishingly faced no meaningful consequence at all."

The former Africo shareholders say the company once owned the exclusive mining rights to Kalukundi when Israeli mining tycoon Dan Gertler, one of Och-Ziff’s partners, orchestrated a plan to illegally take over the property in 2008. The U.S. only referred to an “infamous Israeli businessman” in court documents, but a personal familiar with the matter identified the partner as Gertler.

Africo’s former shareholders cited an April 25, 2017 letter the Justice Department sent notifying them about their rights as "potential" victims of Och-Ziff Africa’s fraud. Prosecutors later adopted Och-Ziff’s argument there were two separate schemes involving the Kalukundi mine and the fund played no role in the dispute that resulted in Africo’s loss of mining rights, according to Fodeman.

DRC officials defended Gertler’s business dealings in the mineral-rich country, saying in 2016 that an attack on him is an attack on the nation.

Judges Bribed

DRC officials were bribed so Och-Ziff would get special access and preferential prices in the government-controlled mining sector, including those belonging to Africo, according to the U.S. Among those bribed were judges who ruled over disputes over mining rights and ownership, the U.S. said.

In detailing Och-Ziff’s fraud, prosecutors also cited text messages between Gertler and one of his associates, discussing the bribes that needed to be paid. At one point Gertler wrote: "Africo must be screwd and finished totally!!!!"

The U.S. in December imposed sanctions on Gertler, because of his close links to DRC’s President Joseph Kabila’s whose administration hasn’t held overdue elections and crushed opposition demonstrations. Gertler has denied any wrongdoing, saying he is Congo’s biggest single investor.

Only one person, Samuel Mebiame, one of Och-Ziff’s fixers in Africa, was sent to prison. Michael Cohen, Och-Ziff’s former head of the European operations, was charged in January in a separate scheme to enrich himself at the expense of a U.K. charity, which prosecutors didn’t identify. He’s not in U.S. custody.

(Updates with comments from company.)
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