SEC Sues Two Och-Ziff Executives for FCPA and Advisers Act Violations

The SEC filed a civil complaint in the Federal District Court for the Eastern District of New York today alleging that two non-US-based executives of Och-Ziff, Michael Cohen and Vanya Baros, violated the US Foreign Corrupt Practices Act (FCPA) and Investment Advisers Act of 1940 in connection with an alleged bribery scheme in Africa between 2007 and 2012.  Specifically, the SEC alleged that these defendants engaged in direct violations of the anti-bribery provisions of the FCPA, violated Section 13(b)(5) of the Securities Exchange Act and Exchange Act Rule 13b2-1 and violated Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, as well as aided and abetted Och-Ziff's violations of the FCPA and Advisers Act.  This case is a follow-on from the SEC's September 2016 settlement with Och-Ziff Capital Management Group and two other executives for FCPA and Advisers Act violations.  As a part of that settlement, Och-Ziff agreed to pay nearly $200 million in disgorgement and prejudgment interest.   

The SEC's complaint against Cohen and Baros is 80 pages long, but as stated by the SEC its press release, the SEC "...alleges that Michael L. Cohen, who headed Och-Ziff’s European office, and an investment executive on Africa-related deals, Vanja Baros, caused tens of millions of dollars in bribes to be paid to high-level government officials in Africa.  Their alleged misconduct induced the Libyan Investment Authority sovereign wealth fund to invest in Och-Ziff managed funds.  Cohen and Baros also allegedly directed illicit efforts to secure mining deals to benefit Och-Ziff by directing bribes to corruptly influence government officials in Libya, Chad, Niger, Guinea, and the Democratic Republic of the Congo."  In this press release, Kara Brockmeyer, the Chief of the SEC's FCPA Unit said "[a]s alleged in our complaint, Cohen and Baros were the masterminds of Och-Ziff’s bribery scheme that improperly used investor funds to pay bribes through agents and partners to officials at the highest levels of foreign governments...”

Although the lawsuit is at the very early stages, this case bears monitoring for reasons including:

1. The reach that the SEC has over non-US based employees of US-listed companies.  Both defendants were employed by a non-US office of Och-Ziff and one (Cohen) was a dual US-UK citizen and owned a residence in the US, while the other (Baros) was not an Austrian citizen who lived in the UK. The SEC has a mixed record here, including the 2013 dismissal of a case it brought against a Siemens Argentina executive for FCPA violations.

2.  Will the SEC be able to carry the burden in establishing the requisite corrupt intent and knowledge necessary to show that these defendants violated the anti-bribery provisions of the FCPA and Section 13(b)(5)/Rule 13b2-1?  Proving the required level of knowledge and intent in FCPA cases is very difficult and the SEC is rarely put to its proof in FCPA cases, although individuals have in the past taken the SEC to trial.  This gets to my third point...

3. What types of evidence did the SEC get from the myriad foreign regulatory authorities that cooperated with its investigation?   Both the SEC and DOJ are increasingly receiving cooperation from foreign authorities, and this case, if it proceeds to trial or advanced stages of litigation, might shed light on the amount and quality of evidence that US authorities are receiving from abroad.