Sec. & Exch. Comm'n v. Cohen, 17-CV-430 (NGG) (LB)

• Court: United States District Courts. 2nd Circuit. United States District Court (Eastern District of New York)
• Writing for the Court: NICHOLAS G. GARAUFIS, United States District Judge
• Citation: 332 F.Supp.3d 575
• Parties: SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. Michael L. COHEN and Vanja Baros, Defendants.
• Docket Number: 17-CV-430 (NGG) (LB)
• Decision Date: 12 July 2018

332 F.Supp.3d 575

SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
Michael L. COHEN and Vanja Baros, Defendants.

17-CV-430 (NGG) (LB)

United States District Court, E.D. New York.

Signed July 12, 2018

332 F.Supp.3d 577

Alfred A. Day, Martin Healey, Alicia Marie Reed, Marc Jonathan Jones, U.S. Securities and Exchange Commission, Boston, MA, for Plaintiff.

Ronald G. White, Amanda Aikman, Kayvan Betteridge Sadeghi, Morrison & Foerster LLP, Mark S. Cohen, Jonathan S. Abernethy, Cohen & Gresser LLP, New York, NY, for Defendants.

MEMORANDUM & ORDER

NICHOLAS G. GARAUFIS, United States District Judge

The Securities and Exchange Commission ("SEC") alleges that, between 2007 and 2012, Defendants Michael L. Cohen and Vanja Baros orchestrated a "sprawling scheme" to bribe various African public officials in exchange for business for the hedge-fund management firm Och-Ziff Capital Management LLC ("OZCM," and, together with its subsidiaries and affiliates, "Och-Ziff"). (Am. Compl. (Dkt. 27) ¶¶ 1-7.) The SEC also alleges that Defendants defrauded Och-Ziff investors and potential investors, evaded OZCM's internal controls, and aided and abetted OZCM's failure to keep accurate books and records.

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(Id. ¶¶ 7-10.) Defendants move to dismiss the SEC's amended complaint for failure to state a claim upon which relief can be granted; Baros also moves to dismiss the amended complaint for lack of personal jurisdiction over him. (Cohen Mot. to Dismiss (Dkt. 46); Cohen Mem. of Law in Supp. of Mot. to Dismiss ("Cohen Mem.") (Dkt. 47); Baros Mot. to Dismiss (Dkt. 41); Baros Mem. of Law in Supp. of Mot. to Dismiss ("Baros Mem.") (Dkt. 43).) For the reasons that follow, the court agrees with Defendants that the SEC's claims are time-barred and therefore GRANTS Defendants' motions to dismiss the complaint for failure to state a claim.

I. BACKGROUND

A. Factual Background

The court takes the following statement of facts largely from the SEC's amended complaint, the well-pleaded allegations of which the court generally accepts as true for purposes of Defendants' motions to dismiss. N.Y. Pet Welfare Ass'n v. City of New York, 850 F.3d 79, 86 (2d Cir. 2017).

Defendants are former London-based employees of OZCM or its subsidiaries.¹ (Am. Compl. ¶¶ 17-18.) Cohen oversaw Och-Ziff's investments in Europe, the Middle East, and Africa; headed OZCM's European office; and was a member of OZCM's management committee and a part-owner and "executive managing director" of OZ Management LP ("OZ Management"), which is an OZCM subsidiary and a registered investment advisor. (Am. Compl. ¶¶ 17, 162.) Baros worked as an analyst in Och-Ziff's private investments group, focusing on investments in the natural-resources sector. (Id. ¶ 18.)

According to the SEC, Defendants planned and executed a series of corrupt transactions that violated the Foreign Corrupt Practices Act (the "FCPA") and the Investment Advisers Act of 1940 (the "Advisers Act"). Defendants allegedly sought out middlemen with close connections to high-ranking officials in various African countries and funneled money from funds managed by Och-Ziff to these middlemen to bribe those officials. (Id. ¶¶ 3-6.) In exchange for these bribes, the officials awarded Och-Ziff preferential access to mining rights and other natural-resources investments and, on one occasion, made a substantial investment in Och-Ziff-managed funds. (Id. ) The SEC also alleges that certain of these transactions personally enriched Cohen and Och-Ziff's African middlemen. (Id. ¶¶ 3, 5.)

In the amended complaint, the SEC describes nine allegedly corrupt transactions in detail:

1. The Libyan Investment Authority ("LIA") Investment

First, the SEC alleges that, in or about 2007, Cohen attempted to win business for

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Och-Ziff in Libya, which then was still ruled by Colonel Muammar Gaddafi. (Id. ¶ 41-42.) To that end, Cohen enlisted "Agent 1," a London-based businessman with connections to high-ranking Libyan government officials (including members of the Gaddafi family), to help arrange an investment by Libya's sovereign wealth fund, the LIA, in hedge funds managed by Och-Ziff. (Id. ¶¶ 25, 42-43.) Agent 1 introduced Cohen to "Libyan Government Official 1," a son of Gaddafi and "the driving force behind the creation of the LIA," and "Libyan Government Official 2," a high-ranking officer of the LIA, to discuss an investment in the Och-Ziff hedge funds. (Id. ¶¶ 31-32, 44-46.) Agent 1 insisted, however, that Cohen conceal from the other members of the LIA that Agent 1 was helping to arrange an investment in the Och-Ziff funds, and he requested a $3.75-million "deal fee" that Cohen allegedly understood would be used to pay kickbacks to Libyan public officials in exchange for the investment. (Id. ¶¶ 51-71.) The LIA invested $300 million in Och-Ziff-managed funds, as a result of which Och-Ziff ultimately collected about $100 million in fees. (Id. ¶¶ 56, 69.)

2. The Libya Real Estate Project

The SEC alleges that Agent 1 and Cohen also worked together on a real-estate venture in Libya (the "Libya Real Estate Project"). (Id. ¶ 72.) To obtain leases for the land on which key properties would be built, Agent 1 gave equity in the development company responsible for the project to a high-ranking officer in Libya's state security services ("Libyan Government Official 3") and Gaddafi's daughter. (Id. ¶ 73.) Cohen arranged for Och-Ziff to provide a $40 million convertible loan to this development company, which he allegedly knew had ties to the Gaddafis, and paid Agent 1 a $400,000 deal fee that he allegedly understood would be used to bribe Libyan government officials "to maintain government support and protection for the Project." (Id. ¶ 6; see also id. ¶¶ 74-77.)

3. The $86 Million Loan and $20 Million Payment

Around the same time, Och-Ziff and certain of its South African business partners formed Africa Management Limited ("AML"), a joint venture that "established" two investment funds—African Global Capital I, L.P. ("AGC I"), and African Global Capital II, L.P. ("AGC II")—to pursue investments in the African natural-resources and mining sectors. (Id. ¶¶ 22, 78.) These business partners included "South African Business Associate 1," a successful businessman, prominent figure within South Africa's African National Congress ("ANC") party, and cofounder of a South African business conglomerate; "South African Business Associate 2," the other cofounder of the South African business conglomerate, who also served as CEO of AML; and "South African Business Associate 3," a businessman with close connections to South African Business Associate 1 and other members of the ANC, and who also controlled a private investment company in the Turks & Caicos Islands (the "Turks & Caicos Entity"). (Id. ¶¶ 28-30, 81-82.) See also Press Release, Mvelaphanda Holdings, Och-Ziff and Palladino Create Joint Venture to Focus on Natural Resources in Africa (Jan. 29, 2008), http://us-cdn.creamermedia.co.za/assets/articles/attachments/10924_mvela.pdf. AGC I was funded by existing Och-Ziff hedge funds, while AGC II was funded by a U.K. institutional investor (the "U.K. Investor") and by a fund composed of investments by Och-Ziff partners. (Am. Compl. ¶¶ 159-60.)

According to the SEC, in May 2007, Och-Ziff lent the Turks & Caicos Entity more than $86 million, ostensibly to acquire natural-resource and mining rights

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in Africa on behalf of AGC I. (Id. ¶ 83.) These funds were used not only to acquire mining rights and licenses in Chad and Niger and to invest in an Africa-focused oil exploration company, but also to pay bribes facilitating these acquisitions and to enrich personally Och-Ziff's South African partners and other middlemen. (Id. ¶¶ 6, 83, 96.) These bribes were arranged by "Agent 2," a Gabonese national, and included payments to high-ranking government officials in Chad and Niger, as well as those officials' spouses. (Id. ¶¶ 85-93.) Additionally, in 2008, Och-Ziff paid approximately $20 million to South African Business Associate 3, ostensibly to acquire uranium-related assets in Niger and mining rights in Chad, but in fact to bribe Chadian and Nigerien government officials. (Id. ¶ 104.) According to the SEC, Defendants knew that money from Och-Ziff funds was being used to pay bribes and to enrich their local partners, but did nothing to stop the misuse of this money. (Id. ¶¶ 96-104.)

4. The $150 Million DRC Mining Company Stake

The bulk of the SEC's allegations relate to Och-Ziff's activities in the Democratic Republic of the Congo (the "DRC"). In December 2007, Defendants began discussions with "Agent 3," described in the amended complaint as "an Israeli businessman with significant interests in the diamond and mining industries in the Congo" and "long-standing and extensive connections to high-ranking government officials in the DRC," about forming a joint venture to consolidate various DRC mining assets into a single, large mining company. (Id. ¶¶ 27, 105.) At the time, Defendants and other Och-Ziff employees were aware that Agent 3 had personal connections to...