Menaldi v. Och-Ziff Capital Management Group LLC
277 F. Supp. 3d 500
S.D.N.Y.2017Background
- Plaintiffs are putative class investors who bought Och‑Ziff securities between Nov. 18, 2011 and Apr. 11, 2016; they filed a Consolidated Second Amended Complaint after this Court’s earlier opinion (Menaldi I).
- The underlying factual allegations concern Och‑Ziff’s Africa dealings (DRC, Libya, Zimbabwe) and an SEC/DOJ investigation beginning in 2011; DOJ later entered a Deferred Prosecution Agreement (DPA) with Och‑Ziff admitting company FCPA violations and imposing penalties.
- Menaldi I left two claims intact: a Rule 10b‑5(b) misrepresentation claim (regarding public statements about the SEC/DOJ investigation) against Och‑Ziff, Och, and Frank; and a § 20(a) control‑person claim against Och and Frank. All claims against Cohen were dismissed in Menaldi I.
- Plaintiffs’ New Complaint sought to (1) revive dismissed claims (including against Cohen), and (2) add new claims: misleading statements about Och‑Ziff’s compliance program, GAAP/ASC 450 failures to disclose/accrue contingencies, and false SOX certifications.
- The Court considered the DPA and SEC Settlement incorporated into the New Complaint but treated the SEC’s finding that Och and Frank lacked actual knowledge of bribes as part of the record for pleading purposes.
- Result: The Court denied Plaintiffs’ attempt to revive claims against Cohen and dismissed the new and renewed claims in the New Complaint, leaving only the claims that survived Menaldi I.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Revive claims against Cohen (scheme & control‑person) | Cohen actively bribed, hid conduct, and engaged in cover‑up that prolonged investigation and harmed investors | Bribery pre‑dated class period; alleged cover‑up is too remote and lacks pleading of investor reliance or connection to securities transactions | Denied — claims against Cohen dismissed as not pleaded in connection with securities transactions and control‑person claim fails without primary violation |
| Duty to disclose uncharged FCPA wrongdoing | Och‑Ziff’s public statements about investigations and compliance made nondisclosure misleading because company knew of bribery and weak controls | No duty to ‘‘confess’’ uncharged wrongdoing; statements were generic and did not place illegal conduct at issue | Denied — Menaldi I holding stands: no duty to disclose uncharged misconduct absent a closer nexus |
| Statements about compliance program (misleading puffery) | Statements portrayed an effective global compliance program while serious violations occurred, so statements were misleading | Statements were generalized, included disclaimers (may not be effective), and did not assert efficacy in specific regions or guarantee compliance | Denied — statements are inactionable puffery and not pleaded as misleading in context |
| GAAP/ASC 450 disclosure/accrual claim | Och‑Ziff should have disclosed/ accrued contingency earlier because subpoenas and business facts made loss reasonably possible or probable | Accounting judgments required; scienter not adequately alleged for senior officers who lacked knowledge of bribes | Denied — complaint adequately alleges reasonable possibility of loss but fails to plead requisite scienter; accrual (probable) not pleaded |
Key Cases Cited
- Menaldi v. Och‑Ziff Capital Mgmt. Grp. LLC, 164 F. Supp. 3d 568 (S.D.N.Y. 2016) (prior opinion dismissing some claims and all claims against Cohen)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (requirement to plead strong inference of scienter under PSLRA)
- Meyer v. JinkoSolar Holdings Co., 761 F.3d 245 (2d Cir. 2014) (when detailed compliance descriptions can be misleading if prophylactics are failing)
- Indiana Pub. Ret. Sys. v. SAIC, Inc., 818 F.3d 85 (2d Cir. 2016) (discussing when ASC/FAS contingency disclosure is required and scienter implications)
- Stoneridge Inv. Partners, LLC v. Sci‑Atlanta, 552 U.S. 148 (scheme liability requires deceptive acts that investors relied upon; remote acts insufficient)