In an interesting turn of events, the Och-Ziff corruption case recently reared its head once again, following news that Michael Cohen—who once oversaw the company’s investments in Europe, the Middle East and Asia—is facing criminal charges of fraud and obstruction of justice, according to recently unsealed court documents.
In the indictment filed in New York federal court, prosecutors said that Cohen concealed conflicts of interest from a United Kingdom-based charitable organization. Cohen, according to the indictment, "made material misrepresentations and omissions to the charitable foundation concerning conflicts of interest and self-dealing that existed with the transaction." Specifically, Cohen failed to disclose that one of the proposed sellers of the shares owed Cohen $18 million and was planning to use proceeds from the sale of the shares to repay Cohen $4 million. The indictment further alleges that Cohen obstructed a U.S. Securities and Exchange Commission investigation through attempts to hide the scheme and self-dealing.
In 2016, the hedge fund firm and its wholly-owned subsidiary, OZ Africa Management, paid a combined $412 million in criminal and regulatory penalties for a widespread scheme involving the bribery of officials in Africa. The case marked the first time a hedge fund was held to account for violating the Foreign Corrupt Practices Act, according to the Department of Justice. The SEC has a separate civil case against Cohen and another former Och-Ziff employee that is continuing.
What is unusual about this new criminal indictment is that Cohen was seeking to use the money of others, not Och-Ziff, to engage in bribery and corruption. Most FCPA enforcement actions are based upon the use of purloined company monies to fund bribe payments. But in this case the criminal allegations against Cohen state that he used other people’s money not only to fund the bribes, but personally gain the benefit of those illegal payments. The continuation of the Och-Ziff affair might cause investors to begin asking more pointed questions of their hedge fund managers about just where and how the monies will be invested.