Och-Ziff Capital Management Group will now turn to U.S. regulators for permission to move on with business as usual after a unit pleaded guilty over its dealings in Africa.
Any financial company touched by guilty pleas may find certain activities cut off unless it can persuade the government to make exceptions. While it may not be essential for Och-Ziff to secure such waivers, it may need some of them to continue doing such things as issuing securities and courting pension fund clients. And if the process becomes politically contentious, as it sometimes has, some clients could get skittish.
Och-Ziff has already lost clients amid its legal troubles, including Goldman Sachs Group's retirement plan. To continue managing corporate pensions after a conviction, the hedge fund operator would typically need permission from the Labor Department.
Court filings last week show there's time built in for Och-Ziff to seek a Labor Department pension waiver. The U.S. attorney's office “will not object to and will consent to a request by the defendant for an initial six-month adjournment of sentencing to allow time for Och-Ziff to pursue an application” with the Labor Department, the government said. The U.S. attorney would agree to a longer delay if required to obtain a waiver, it added.
As a publicly listed hedge fund manager, Och-Ziff is also likely to seek waivers from the Securities and Exchange Commission. Securities lawyers say one such waiver could help Och-Ziff maintain its status as a well-known seasoned issuer, allowing it to issue its own shares or bonds without waiting for SEC approval. Another, they say, would provide Och-Ziff with a safe harbor to protect it from litigation related to forward-looking statements.
Och-Ziff may also find it necessary to apply for an SEC waiver for authority widely used by private funds and other companies to raise capital in certain small offerings.
Och-Ziff, through a spokesman, declined to comment.
Regulatory waivers have become politically fraught over the last two years. Several banks including J.P. Morgan Chase, UBS Group and Credit Suisse Group received them despite calls from Capitol Hill for regulators to give much closer scrutiny to their applications.
Democrats on the SEC have voted against granting some, and House Democrats persuaded Labor Secretary Tom Perez to hold a public hearing last year, the first of its kind, over whether Credit Suisse should receive waivers after entering a guilty plea. The waiver was granted nine months later.
In some ways, the benefits of receiving waivers might be more symbolic than practical. Och-Ziff, with $39.2 billion under management, relies far less on private pension funds than on public pension funds, which aren't subject to the Labor Department's rules governing corporate convictions. About 1% of Och-Ziff's assets are subject to the waiver it's expected to seek from the Labor Department, according to company spokesman Joseph Snodgrass.
Och-Ziff, the largest publicly traded U.S. hedge fund manager, could also work around the waiver problem by enlisting partners to handle some transactions on its behalf. Nonetheless, a failure to win waivers could further erode confidence among Och-Ziff clients, who have pulled out $6 billion since June 2015.
After a five-year probe of its business practices, OZ Africa Management pleaded guilty to one count of conspiracy to violate the Foreign Corrupt Practices Act. The parent company additionally entered into a deferred-prosecution agreement, settled civil claims by the SEC and agreed to pay $413 million in penalties.
Sen. Elizabeth Warren, D-Mass., and others have urged the Labor Department to scrutinize banks more carefully before granting regulatory waivers. SEC Chairwoman Mary Jo White countered that the commission was loath to use the threat of withholding waivers as an “additional enforcement tool.”
Andrew Ceresney, who heads the SEC's enforcement division, told reporters last week that his unit didn't handle waiver requests and declined to comment further. The SEC publicly discloses waivers when they are granted, he said.
