In September 2016, in connection with certain of the same core conduct alleged in the Och-Ziff Foreign Corrupt Practices Act enforcement action, the SEC also released an administrative order finding that (see here for the prior post) Daniel Och (CEO and Chairman of Och-Ziff) was a cause of certain of the company’s FCPA books and records violations and that Joel Frank (CFO – pictured) was a cause of certain of the company’s FCPA books and records and internal controls violations.
Without admitting or denying the SEC’s findings, Och agreed to pay approximately $2.2 million and Frank likewise agreed to resolve the action without admitting or denying the SEC’s findings and the SEC stated that and “a penalty will be assessed against him at a future date.”
Oddly, it took approximately 4.5 years, but earlier this week the SEC ordered that Frank pay a $35,000 civil penalty.
It is further odd that this week SEC’s order is a bit softer on Frank than the original 2016 enforcement action.
In the 2016 enforcement action, the SEC found:
“Frank approved the expenditure of Och-Ziff funds in transactions in which bribes or improper payments were made. Both Och and Frank were aware of the high risk of corruption in transactions with Och-Ziff’s DRC partner in light of his reputation and connections to high level DRC government officials. Despite these risks, Och approved and Frank authorized Och-Ziff to enter into each of these transactions. As a result, although neither Och nor Frank knew that bribes would be paid, Och caused Och-Ziff’s books and records violations in two DRC transactions, and Frank caused the company’s books and records and internal controls violations in connection with the two DRC Partner transactions and the LIA fee payment.” (emphasis added)
“Each transaction described above required Frank’s authorization of the relevant disbursements. In the two DRC transactions and the LIA fee payment involving bribery, failures of Och-Ziff’s internal controls, and books and records violations, Frank failed to ensure that required information regarding transactions was documented accurately, that appropriate business partner information and due diligence was obtained, that transactions were structured properly to avoid corruption, and that ongoing due diligence and audits were performed to prevent or detect improper use of Och-Ziff investor funds. Frank approved Och-Ziff’s payments in the transactions with DRC Partner in which he believed there was a high risk of corruption. Despite his concerns, Frank deferred to Och as the final decision maker and executed payment on the 2008 convertible loan and 2010-2011 margin loan with DRC Partner per Och’s approval. As a consequence, Frank caused violations of the internal controls and books and records provisions of the FCPA by OchZiff in the three transactions noted above.” (emphasis added).
In contrast to the 2016, enforcement action, the recent SEC order merely states in summary fashion:
“Beginning in 2007 and continuing through 2011, Och-Ziff Capital Management Group LLC (“Och-Ziff”) entered into a series of relationships and investments in which bribes were paid through intermediaries and business partners to high ranking government officials in several nations on the African continent in order to win or retain business for Och-Ziff. Joel Frank, the Chief Financial Officer of Och-Ziff, failed to fulfill his responsibilities regarding Och-Ziff’s internal accounting controls and its books and records. As a result, Och-Ziff inaccurately and unfairly reflected the dispositions of its assets in its books and records and failed to devise and maintain a sufficient system of internal accounting controls. Frank’s acts and omissions were a cause of Och-Ziff’s violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act.” (emphasis added).
Elsewhere the order states in pertinent part:
“For each transaction in which corrupt payments were made to foreign government officials, senior executives at Och-Ziff had to approve the expenditure of those funds. First, the transaction had to be promoted and supported by Och-Ziff’s deal team in London, which was run by the head of Och-Ziff’s European office. Then each transaction had to be approved by Och-Ziff’s legal and compliance team. Next, each transaction and expenditure of funds had to be approved by Frank, to whom the legal and compliance team reported. Finally, each transaction under investigation was approved by the Chief Executive Officer of Och-Ziff. For certain transactions in which bribes were paid, Frank (and others) expressed objections to the CEO. In those cases, the CEO decided to move forward with the transactions despite Frank’s objections.
[…]
Frank had final signing authority for every expense paid by Och-Ziff. He also had final approval and funding authority for every private side investment transaction that took place using OZM investor funds. For each improperly recorded transaction, Frank authorized and approved the payment being made.
Frank also had primary responsibilities for Och-Ziff’s and OZM’s books and records.
Additionally, for each of the deals that ultimately led to the payment of bribes, OchZiff’s anti-corruption procedures required several control measures be taken. In each of the transactions indicated above, Och-Ziff either failed to follow its internal accounting controls or avoided conducting additional due diligence on these high risk transactions and business partners.
Frank failed to ensure that required information regarding transactions was documented, that appropriate business partner information was obtained, and that ongoing due diligence and audits were performed properly. In doing so, he caused Och-Ziff to fail to devise and maintain a sufficient system of internal accounting controls.”
Because the SEC’s recent civil penalty order is in connection with the SEC’s 2016 enforcement action, it will not be separately counted in 2021 FCPA enforcement statistics. Anyone who does otherwise is … well … double dipping.
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