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Och-Ziff Could Really Use A Reputation Reserve Right Now

Engaging in massive bribery will do that to you.
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By NASA [Public domain], via Wikimedia Commons

via Wikimedia Commons

Seeing as how Och-Ziff did not have to plead guilty for bribing public officials the length and breadth of Africa—it got away with a deferred prosecution agreement and letting a subsidiary take the fall—Daniel Och & Co. might be feeling pretty relieved. A good deal lighter cash-wise, to be sure, what with the $400 million-plus it’s ponying up to make the Justice Department and SEC go away, but like it’s turned the page and is ready to turn the page and start working harder on not losing money, you know, now that it’s got the time. The only problem is, fee breaks notwithstanding, investors—especially the kind of big, institutional, often public investors that Och-Ziff works for—tend not to like hearing the following things said of their fiduciaries:
• “repeatedly funded corrupt transactions”
• “engaged in complicated, far-reaching schemes to get special access and secure significant deals and profits through corruption”
• “ignored red flags and corruption risks.”

As such, Och-Ziff may not quite get away with just writing a few novelty-sized checks.

The firm may face collateral consequences for its future funding and investment activities because of the case. Och-Ziff will have to seek a waiver from the S.E.C. from the automatic “bad actor” bar that would disqualify it from offering securities without having to go through the full disclosure process, and could be ineligible for the “well-known seasoned issuer” status that lets a company register its securities for sale more easily. The Labor Department will have to clear the firm to continue managing certain pension and retirement funds….

The reputational impact of the case may be the greatest harm to the firm, rather than the total payment to the government of about $413 million, one of the largest penalties ever assessed for violating the F.C.P.A. The New York Times reported that investors had withdrawn more than $5.5 billion from its hedge funds this year, and settling criminal and civil cases is not going to make them any more confident in how the firm will perform.

Och-Ziff May Face Consequences Beyond Fine in Bribery Case [DealBook]


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