Menaldi v. Och-Ziff Capital Management Group LLC
164 F. Supp. 3d 568
S.D.N.Y.2016Background
- Plaintiffs (class investors) allege Och‑Ziff and officers misled investors from Feb 9, 2012–Aug 22, 2014 about an SEC/DOJ investigation into certain African investments and about legal compliance.
- The contested African Transactions involved: (1) a $100M‑linked financing tied to Zimbabwe platinum rights (CAMEC/Todal/Lefever); (2) loans to Daniel Gertler for Congo copper/cobalt and oil deals; and (3) dealings with Libya’s sovereign wealth fund (LIA) and related development contracts.
- Och‑Ziff received SEC subpoenas and DOJ information requests beginning in 2011; the Investigation’s details were nonpublic until later disclosures and press reporting.
- The challenged public statements (10‑K/10‑Q filings, 2012–2014) described regulatory scrutiny as routine and stated the company was not subject to pending proceedings expected to have a material impact, and touted transparency/risk management.
- Plaintiffs asserted (a) Rule 10b‑5(b) misstatements/omissions (management defendants), (b) Rule 10b‑5(a)/(c) scheme liability (all defendants), and (c) § 20(a) control‑person liability (officers). Defendants moved to dismiss; court dismissed some claims and survived others.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether failure to disclose alleged uncharged illegal conduct (FCPA/sanctions) is actionable under §10(b) | Plaintiffs: Och‑Ziff committed illegal conduct in Africa and thus had a duty to disclose the misconduct | Defendants: Plaintiffs fail to plausibly plead underlying illegality; no duty to self‑accuse | Dismissed: Plaintiffs failed to plead plausible underlying violations or any duty to disclose uncharged wrongdoing |
| Whether pre‑restatement SEC filings were materially misleading about the SEC/DOJ Investigation | Plaintiffs: Boilerplate statements minimized a material investigation; omission misled investors | Defendants: No duty to disclose investigation; statements were adequate/boilerplate | Survived: Court found plaintiffs plausibly alleged materially misleading statements about the Investigation (excluding puffery) |
| Whether plaintiffs pleaded scienter for the misleading SEC filings | Plaintiffs: Management knew of subpoenas/requests from 2011 and recklessly downplayed risk until press disclosure | Defendants: No culpable state of mind alleged | Survived: Court found allegations (knowledge of Investigation + delayed detailed disclosure) give rise to a strong inference of recklessness |
| Whether scheme liability under Rule 10b‑5(a)/(c) and control‑person liability under §20(a) survive | Plaintiffs: Defendants ran a deceptive scheme to portray compliance and conceal Cohen’s conduct; officers controlled Och‑Ziff | Defendants: No deceptive act distinct from misstatements; Cohen had no primary violation | Scheme claim dismissed (no deceptive act distinct from misstatements); §20(a) survives as to Och and Frank but is dismissed as to Cohen |
Key Cases Cited
- Wilson v. Merrill Lynch & Co., Inc., 671 F.3d 120 (2d Cir. 2011) (pleading standards and plausibility for securities claims)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) (PSLRA scienter standard—strong inference requirement)
- Stoneridge Inv. Partners, LLC v. Scientific‑Atlanta, 552 U.S. 148 (2008) (elements of Rule 10b‑5 claims and connection to securities transactions)
- City of Pontiac Policemen’s & Firemen’s Ret. Sys. v. UBS AG, 752 F.3d 173 (2d Cir. 2014) (limits on duty to disclose uncharged wrongdoing)
- ECA, Local 134 IBEW Joint Pension Tr. of Chicago v. JP Morgan Chase Co., 553 F.3d 187 (2d Cir. 2009) (materiality as mixed question and inactionable puffery)
- Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund, 135 S. Ct. 1318 (2015) (when opinions are actionable for omissions about the basis of the opinion)
- In re BioScrip, Inc. Sec. Litig., 95 F. Supp. 3d 711 (S.D.N.Y. 2015) (boilerplate compliance disclosures can be actionable when misleading; scienter analysis)