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Friday Roundup

Long Shadow and sentenced. It’s all here in the Friday roundup.

“Simply Put, the FCPA Settlement Cast a Long Shadow on the Firm”

As highlighted in prior posts here [1] and here [2] in 2016 hedge fund Och-Ziff resolved a $412 million Foreign Corrupt Practices Act enforcement action concerning improper business practices in various African countries.

In the aftermath of the enforcement action, the hedge fund experienced substantial withdrawals and experienced various difficulties raising capital. (See here [3]).

A few months ago, Och-Ziff changed its name to Sculptor Capital Management, Inc. and in a recent investor conference call an executive stated:

“Simply put, the FCPA settlement cast a long shadow on the firm. The settlement, subsequent corporate events and reputational overhang of these matters are the primary reason why material inflows have not resumed in our core open-ended funds. We have been aware of this negative impact and have taken necessary steps to address the issue and move the firm forward.

The firm that got into trouble 10 years ago in Africa does not exist today. Sculptor today has completely new management, compliance controls and governance structure. No one who was involved in the FCPA matter remains at the firm. We now have the team and governance structure in place that leaves us highly confident not only that we will avoid regulatory problems in the future but also that we can maintain a stable, professional and highly transparent investment organization.

To mark this change, we have a new name, which sends the message to our clients’ constituents that we have entered a new chapter. The firm has made necessary changes to demonstrate to potential clients that Sculptor is a prudent choice for capital allocation. Clients and potential clients have reacted positively to these changes, and while the length of the sales process means it will take time to see results, we feel confident knowing we’ve done everything we can to position the firm for success.”

Sentenced

As highlighted in this prior post [4], in late 2017 – in connection with the Foreign Corrupt Practices Act enforcement action against Keppel Offshore & Marine concerning conduct in Brazil – the DOJ also criminally charged Jeffrey Chow (an in-house lawyer at the company).

According to the DOJ:

“To facilitate the payment of those bribes and to conceal the true nature and purpose of the payments, in accordance with the established practices at [KOM] Chow and other employees at [KOM] created and executed false agreements on behalf of [KOM] with consulting companies controlled in whole or in part by [KOM Agent]. These agreements falsely represented that payments were made to [KOM Agent] for his assistance and support in discussions and negotiations with prospective customers when, in fact, portions of these payments were being paid as bribes. Certain of these agreements also falsely represented that [KOM Agent] was abiding by anti-bribery laws and was not making improper payments.”

Chow was recently sentenced. As highlighted in this Law360 article [5]:

“[Chow] was sentenced to probation … for his role in the company’s overseas bribery after a Brooklyn federal judge took his cooperation with the government into account.

[…]

Prosecutors said Friday that Chow was instrumental in those cases as well as in the prosecution of Zwi Skornicki, a Brazilian consultant the companies used to pay bribes. Skornicki has pled guilty in the U.S. and also served prison time for charges over the same conduct in Brazil. The government asked the judge to hand down a sentence below what was called for by the sentencing guidelines, which turned out to be the maximum sentence of five years. In handing down Chow’s sentence on Friday, U.S. District Judge Kiyo Matsumoto said she had wrestled with how to weigh his cooperation against the need to deter foreign bribery. The judge said it would be a “perverse result” to send Chow to prison given that he was the only one who proactively cooperated with the government while others involved had “remained away from the U.S.” and “managed to keep their earnings.” Chow’s attorney John Carroll said that Chow was a minor player in the scheme, and that rather than being a bad apple, “Mr. Chow was working in a bad barrel.” Judge Matsumoto pushed back on that assessment somewhat, saying that Chow played a “critical” role by drawing up the consulting agreement with Skornicki that provided him with the money to pay an estimated $30 million in bribes. Chow himself briefly addressed the court, apologizing to his family, the company and its shareholders for not stopping the scheme in 2008 when he realized what was going on. “I take full responsibility for my actions,” he said.

[…]

In addition to serving a year of probation, Chow was ordered to pay a $75,000 fine.”

[6]