Shares of hedge-fund company - Och-Ziff Capital Management Group LLC ( OZM ) toppled about 9.90% to close at $11.65 on Monday. The significant fall in price followed a Wall Street Journal article, which disclosed that the U.S. authorities' investigation has been initiated over the hedge-fund firm's financial backing over controversial oil and mining deals in Africa.
Last month, Och-Ziff also revealed in its filing about the ongoing scrutiny by the Securities and Exchange Commission (SEC) and U.S. Department of Justice over the investments by some of its funds in Africa. The investigation centers on the infringement of Foreign Corrupt Practices Act and related laws by the firm.
According to documents produced by the Wall Street Journal , Och-Ziff provided two loans totaling $234 million to the companies of Dan Gertler, one of the richest men in Israel. Further, the documents disclosed that Och-Ziff's loans financed two of Gertler's projects in the Democratic Republic of Congo, where he acknowledged to his close association with President Joseph Kabila.
The first loan of $115 million was provided in 2008 by an investment fund run by Och-Ziff and its South African partners. Further, an additional amount of $9 million was lent through a registered company in the British Virgin Islands.
With this loan, Gertler financed a deal and acquired controlling rights of a copper and cobalt mine in southern Congo called Kalukundi. The joint venture of Och-Ziff and its South African partners through negotiations acquired the rights in the managerial activities of the mine. Notably, this mine was involved in some ownership dispute.
Later, in Aug 2012, Gertler repaid $160 million including the return of $36 million on the loan routed by Och-Ziff.
The second loan of $110 million was provided by Och-Ziff in Nov 2010 through a registered company in the Cayman Islands. The loan was initially used to grow an oil concession gained by Gertler around 5 months earlier. Notably, the concession covered two controversial oil blocks on Lake Albert between Congo and Uganda.
However, Gertler paid back the second Och-Ziff loan in Jan 2013, though the interest amount was not disclosed.
Mr. Gertler who invests in several mines across Africa has been entangled in legal issues as some of his deals are facing legal disputes and lacks transparency.
Gertler's spokesman denied any wrongdoing in the Congo dealings. He has accepted some flaws in the disclosures but is working to improve transparency in his dealings. Moreover, information needed by the U.S. government investigators related to the issue is not clear. The SEC and Justice Department declined to comment.
Currently, Och-Ziff carries a Zacks Rank #3 (Hold). Some better-ranked investment managers include Cohen & Steers Inc. ( CNS ) and Lazard Ltd. ( LAZ ) with a Zacks Rank #1 (Strong Buy), while Affiliated Managers Group Inc. ( AMG ) holds a Zacks Rank #2 (Buy).