Mt. Sunapee, Loon buyer paid $412m to settle criminal, civil bribery charges

Hedge fund bribed officials in several African nations, including Qaddafi’s son
World Economic Forum photo by Monikia Flueckiger
Daniel S. Och is founder of the $39 billion hedge fund that is seeking to acquire Mt. Sunapee|!!| Loon Mountain and 12 other ski resorts across the country.

Och-Ziff Capital Management Group, the New York-based hedge fund that is buying 14 ski resort properties across the country, including Loon Mountain and Mt. Sunapee, earlier this year agreed to pay $412 million in criminal and civil penalties to settle charges related to offering bribes in several African nations, with some money allegedly going to the son of Col. Muammar el-Qaddafi, the late Libyan dictator.

The settlement, reached Sept. 29, was the fourth-largest penalty ever levied under the federal Foreign Corrupt Practices Act and the first ever paid by a hedge fund.

At the beginning of November, Och-Ziff announced it was participating in a complicated three-way, $830 million deal to buy the 14 resorts, described by many as the largest ski resort transaction in history.

The agreement still has to be approved by the U.S. Securities and Exchange Commission, the very agency that brought the civil bribery charges against Och-Ziff. Those charges resulted in $199 million in civil fines. The U.S. Justice Department lodged criminal charges as well, and they resulted in the rest of the penalty as well as some restrictions that mean more regulatory oversight over the hedge fund’s future investments.

Calls to the agencies about whether the settlement would have any bearing on approval of the ski deal were not returned by deadline. Och-Ziff declined comment.

‘Professional services’

Och-Ziff agreed on Nov. 2 to buy the real estate of the 14 resorts, which also include Okemo in Vermont, Sunday River and Sugarloaf in Maine, from CNL Lifestyle Properties, a Florida-based real estate investment trust that is liquidating its assets. The operators of the resorts’ ski businesses, including the Mueller family at Sunapee and Boyne Resorts, which operates Loon, have long-term leases with CNL and are expected to continue operating as before.)

The deal also involves EPR Properties, a Kansas City, Mo., firm that will not acquire one ski resort as well as 20 water parks, amusement parks and family entertainment centers. It will also help finance Och-Ziff’s purchase. All three of the companies are publicly traded, including Och-Ziff.

At the time of settlement, Oct-Ziff had $39 billion in assets under management, 14 percent less than the amount it had at the start of the year. Similarly, its own assets slipped from $10.7 billion to $1.4 billion over those nine months. Revenue went from $980 million to $148 million from 2015, year to date, and the company lost $318 million, as opposed to gaining $294 million a year earlier.

Disclosure of the federal investigations into the bribery as well as accompanying class action lawsuits, contributed to the company’s financial woes.

The government says the bribes were paid to high-level officials of the Democratic Republic of Congo, Chad, Niger, Guinea and Libya. Some were used to secure mining rights, according to the federal agencies.

The payments induced the Libyan Investment Authority to invest $300 million in funds managed by Och-Ziff. Some of the bribe money reached Qaddafi’s son. Another $18 million was a loan to a Libyan official to build a “super yacht”

The SEC also cited the company for not recording the bribes correctly on its books. The firm had categorized a bribe to a Libyan agent under “professional services.”

‘Red flags’

The scheme was operated by two executives who are no longer with the company and were not named or charged by the federal authorities, though that investigation is continuing, said both the SEC and DOJ.

Authorities are also not charging that hedge fund’s founder and CEO, Dan S. Och, or alleging that he engaged in the bribes himself, or even that he necessarily knew about them.

But Och agreed to pay a $2.2 million fine for approving transactions despite several “red flags,” including overruling warnings from his own lawyers and compliance officers, the SEC said. The company’s chief financial officer also settled with the SEC, but that fine has yet to be determined.

Ochs, who has received $27 million in compensation over the past three years, has an estimated net worth of $2.7 billion, according to Forbes.

“Och-Ziff allowed these corrupt relationships to continue in an effort to secure a return on investment rather than sever ties with illegal activity,” the SEC said.

Och-Ziff itself also didn’t plead guilty to criminal charges, although its African subsidiary did. But it agreed to deferred prosecution, which means it could be prosecuted if it violates any of the terms of the agreement, which includes a compliance monitor that should have free access to the company’s corporate records.

According to The New York Times, the company might be hampered in future investment activities because it was would be considered a “bad actor” under new SEC rules.

That means it might not be able to sell its funds easily, and the Labor Department might have to clear the firm to continue managing certain pension and retirement funds.

But the SEC usually grants waivers in such cases, and even if it didn’t, there is no evidence that it could affect a real estate deal.

The deal “clears the way for Och-Ziff to continue investing on behalf of its clients,” said the company in its release about the settlement.

The release noted that even before the settlement it had strengthened its “anti-corruption program”, making a “substantial investment to enhance its compliance personnel and infrastructure,” including forming a “business risk committee” and appointing former U.S. Attorney General William Barr to its board as chair of a new committee on corporate responsibility.

“This conduct is inconsistent with our core values and not representative of our hundreds of employees worldwide, who are dedicated to serving our clients with the utmost integrity,” Och said in the release. “We have learned from this experience and taken significant steps to strengthen Och-Ziff.”

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