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.
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,
Defendants are former London-based employees of OZCM or its subsidiaries.
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
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
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 high-ranking DRC officials and that he had been implicated in corrupt dealings with those officials. (Id. ¶ 109(e); see id. ¶¶ 105-06, 108-10.) The SEC also alleges that Agent 3 told Baros and Cohen at face-to-face meetings that he had powerful "friends" in the DRC and that those friendships were "expensive" to maintain. (Id. ¶ 106.) Although at least two senior Och-Ziff executives argued against doing business with Agent 3, "Och-Ziff Employee 1," a high-ranking Och-Ziff executive, overruled them, allegedly at Cohen's urging. (Id. ¶¶ 110-11.) See also Cease-and-Desist Order, Och-Ziff Capital Mgmt. Grp. LLC, Exchange Act Release No. 78,989,
The first transaction involving Agent 3 began on March 7, 2008, when Agent 3 emailed Cohen a plan for Och-Ziff to fund a series of transactions through which Och-Ziff and Agent 3 would consolidate ownership of mining assets in the DRC. (Am. Compl. ¶¶ 115-16.) As a first step in this plan, Och-Ziff would acquire a $150 million stake in a DRC-focused mining company controlled by Agent 3 (the "DRC Mining Company"). (Id. ) Ostensibly as part of the diligence for this transaction, Baros traveled to Zimbabwe and the DRC and met with a senior executive of the DRC Mining Company (the "DRC Mining Company Official"). (Id. ¶ 117.) Allegedly at Cohen's urging, on March 27, 2008, Och-Ziff purchased $150 million in shares of the DRC Mining Company; on the same day, Agent 3 allegedly paid $11 million in bribes to "DRC Government Official 2," who was at the time "a high-ranking government official in the DRC and close advisor to DRC Government Official 1." (Id. ¶¶ 34-35, 119.) Defendants and others at Och-Ziff later learned that the DRC Mining Company had used the funds not to expand its existing DRC mining operations, but instead to acquire a platinum-mining asset in Zimbabwe that the Zimbabwean government had recently expropriated and sold to an entity affiliated with the DRC Mining Company Official. (Id. ¶¶ 117, 120.) According
5. The $124 Million Convertible Loan
In a related transaction in early 2008, Defendants also "arranged for [OZCM] to cause AGC I to enter into an approximately $124 million [c]onvertible [l]oan agreement with" a DRC holding company affiliated with Agent 3. (Id. ¶ 125.) At the time, a Canadian mining company (the "Canadian Mining Company") was embroiled in a dispute over the ownership of rights to develop a copper mine in the DRC.
To carry out this scheme, Defendants provided Agent 3 with a $124 million convertible loan (the "$124 Million Convertible Loan") for the stated purposes of acquiring the Congolese entity, acquiring a controlling interest in the Canadian Mining Company, and funding future mining operations within the DRC. (Id. ¶ 126-127.) According to the SEC, the transaction was structured as a convertible loan to evade internal due-diligence requirements, and the "unstated, but key, use of the funds ... was to provide Agent 3 with funds to pay bribes to DRC government officials" to authorize the scheme. (Id. ¶¶ 127-29.) The transaction structure gave Agent 3 "complete discretion over how to use approximately $24 million of the loan proceeds," and Agent 3 ultimately used more than $10 million from the loan to bribe DRC Government Official 2 and judges involved in the DRC legal dispute over the mining rights. (Id. ¶¶ 131-37.)
In November 2008, Och-Ziff audited Agent 3's expenses to ensure that the loan proceeds had been used for legitimate purposes. (Id. ¶ 142.) After an AML employee noticed that certain records suggested that some of the loan proceeds had been used for "maintaining 'political alignment' and for 'protocol' with the authorities in the DRC," Baros directed the employee to remove any references to these suspicious payments from a draft audit report. (Id. ¶¶ 142-43.) In August 2012, Baros forwarded the sanitized report to an Och-Ziff in-house lawyer without telling the lawyer that an earlier draft of the report had referred to suspicious payments to DRC officials. (Id. ¶ l44.)
6. The $130 Million Margin Loan
According to the SEC, Agent 3 continued bribing DRC Government Official 2 and corruptly acquiring assets in the DRC throughout 2009 and 2010. (Id. ¶¶ 145-46.)
Shortly thereafter, Agent 3 asked Cohen to lend him money "to further his efforts to consolidate his DRC assets for potential resale" under circumstances making clear that Agent 3 would use loan proceeds to pay bribes. (Id. ¶¶ 148, 155.) Through a newly created Cayman Islands partnership, Och-Ziff agreed to lend $110 million (later increased to $130 million) to a British Virgin Islands company controlled by Agent 3. (Id. ¶ 152.) The terms of the loan ("$130 Million Margin Loan") placed no restrictions on how Agent 3 would use more than $84 million in loan proceeds. (Id. ¶ 153.) Once the transaction was completed, Agent 3 used the loan proceeds not only to pay down debt, but also to pay at least $10 million in bribes to DRC Government Official 1 and DRC Government Official 2. (Id. ¶ 154.) These bribes enabled Agent 3 to consolidate his DRC holdings and sell them to the third-party mining company, and the profits from this sale enabled him to repay both the $124 Million Convertible Loan and the $130 Million Margin Loan, with Och-Ziff ultimately receiving more than $342 million in satisfaction of the outstanding loan agreements between August 2012 and January 2013. (Id. ¶¶ 155-56.)
7. The $77 Million Stock Transaction / $52 Million Windfall
The amended complaint next turns from the DRC to Guinea and the United Kingdom. In 2010, Defendants allegedly learned that, thanks in part to Agent 2, South African Business Associate 3 had developed a "strong relationship with a high-ranking government official in the Republic of Guinea" and with the official's family and that Defendants could leverage this relationship to obtain mining assets. (Id. ¶ 168; see id. ¶¶ 167-80.) According to the SEC, South African Business Associate 3 requested Defendants' help carrying out a "far-flung plan" that "involved helping Guinean government officials to revise the country's mining code, create a state-owned mining company in Guinea, and seize assets from other companies to put into the state entity." (Id. ¶ 169.) To implement this plan, Defendants needed to find a way to transfer "a large infusion of cash" to South African Business Associate 3. According to the SEC, Defendants first planned for AGC II to buy directly from South African Business Associate 3's business conglomerate shares in a London-based mining company (the "London Mining Company") in which AGC I, South African Business Associate 3, and Och-Ziff already held significant interests. (Id. ¶ 171.) This plan failed, however, because South African law limited the conglomerate's ability to transfer the sale proceeds outside of South Africa. (Id. )
In response, Defendants and South African Business Associates 2 and 3 allegedly devised an alternative transaction structure under which the Turks & Caicos Entity would purchase 31.5 million shares in the London Mining Company for $25 million, then immediately resell 18.5 million of those shares to AGC II for $77 million. (Id. ¶ 173.) The transaction was executed in April 2011 (id. ¶ 167), and South African
Under the investment agreement for AGC II, the U.K. Investor had the right to review and reject any transaction involving potential conflicts of interest. (Id. ¶ 159.) To obtain the U.K. Investor's approval for this transaction, Defendants allegedly misrepresented that the Turks & Caicos Entity already owned the shares in the London Mining Company and failed to inform the U.K. Investor that the $77 million purchase price represented a more than 400-percent markup over the Turks & Caicos Entity's cost of acquiring those shares, or that the true purpose of the transaction was to runnel money to South African Business Associate 3 to use to pay bribes and to pay back AGC I. (Id. ¶¶ 175-80.)
8. The Republic of the Congo ("Congo-Brazzaville") Oilfield Transaction
The SEC also alleges that in May 2010, Cohen learned that high-level government officials from South Africa and the Congo-Brazzaville had agreed to give an oil exploration company affiliated with the AML joint venture (the "Oil Exploration Company") the opportunity to buy a 25-percent stake in an oil field off the coast of Congo-Brazzaville. (Id. ¶ 182.) Cohen allegedly learned that, as a part of the transaction, a third-party South African entity with close ties to the ANC but no oil-exploration experience (described by the Oil Exploration Company as "Partner X" or "the government") would receive a 25-percent interest in the OH Exploration Company's 25-percent stake for free. (Id. ¶¶ 183, 185.) The deal stalled due to Och-Ziff's concerns about its proposed partners in the transaction, but Cohen allegedly pushed to revive the transaction under new terms, including the following: (1) that the Oil Exploration Company, funded by AGC II, would pay $13 million to South African Business Associate 3, purportedly as compensation for his prior losses in Congo-Brazzaville; and (2) that an agent with ties to a high-ranking Congo-Brazzaville official (the "French Agent") would receive a $5 million payment, funded by AGC II, and 25 percent of the Oil Exploration Company's stake in the project as compensation for arranging the transaction. (Id. ¶¶ 184, 186.) Och-Ziff Employee 1 approved this transaction despite the objections of Och-Ziff's legal and compliance team. (Id. ¶ 188.) Cohen allegedly obtained the U.K. Investor's consent to the transaction by failing to inform it of important details of the transaction, including how the transaction was originally sourced, that the first iteration of the transaction involved the use of a different local partner with a history of corruption and ties to the South African government, and that the original transaction did not involve payments to intermediaries. (Id. ¶¶ 184, 189-90.) Cohen and Och-Ziff also allegedly misrepresented to the U.K. Investor that steps would be taken to ensure that transaction proceeds would not be used for corrupt purposes, although no such steps were taken. (Id. ¶ 190.) After the transaction was consummated, South African Business Associate 3 transferred to a Lebanese account belonging to the French Agent $10 million of the $13 million he had received. (Id. ¶ 191.)
9. The London Holding Company Transaction
Finally, the SEC alleges that Defendants engaged in fraud and self-dealing in connection with a series of transactions involving a London-based mining holding company (the "London Holding Company"). According to the SEC, in 2008, Cohen made an $18 million personal loan to Agent 1 to fund the construction of a "super
B. Procedural History
The SEC filed its initial complaint on January 26, 2017 (Dkt. 1), and an amended complaint on May 29, 2017 (see Am. Compl.). Based on the aforementioned allegations, the SEC alleges that both Defendants (1) violated the anti-bribery provisions of the FCPA; (2) aided and abetted OZCM's violations of the anti-bribery provisions of the FCPA; (3) aided and abetted OZCM's violations of Section 13(b)(2)(A) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78m(b)(2)(A), which requires issuers of certain registered securities to make and keep accurate books and records; (4) violated Section 13(b)(5) of the Exchange Act, 15 U.S.C. § 78m(b)(5), and Rule 13b2-1 thereunder, which prohibit the circumvention of internal accounting controls (among other things); and (5) aided and abetted OZ Management's violations of Sections 206(1), (2), and (4) of the Advisers Act, 15 U.S.C. § 80b-6(l), (2), (4), which prohibit investment advisers from engaging in certain fraudulent conduct with respect to investors and prospective investors. (Am. Compl. ¶¶ 204-19, 224-35.) The SEC also alleges that Cohen independently violated Sections 206(1) and (2) of the Advisers Act. (Id. ¶ 220-23.) As relief, the SEC requests civil penalties under the Exchange Act and Advisers Act, disgorgement of allegedly ill-gotten gains, and a permanent injunction barring Defendants from violating these provisions in the future. (Id. at pp. 84-85.) These motions to dismiss followed.
A Rule 12(b)(6) motion tests the legal adequacy of the plaintiff's complaint. To survive a Rule 12(b)(6) motion, the complaint must "contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.' " Ashcroft v. Iqbal,
The court's review of a Rule 12(b)(6) motion is generally limited to the allegations of the complaint, as well as "any written instrument attached to it as an exhibit or any statements or documents incorporated in it by reference." Chambers,
III. DISCUSSION
Defendants offer a number of reasons why, in their view, the court should dismiss the amended complaint. In short, Cohen argues that all claims against him are time-barred; that the SEC impermissibly attempts to apply the Advisers Act to predominantly extraterritorial conduct; and that the SEC has not pleaded certain of its claims against him with the requisite degree of particularity. (See Cohen Mem.) Baros joins in Cohen's statute-of-limitations and extraterritoriality arguments and further argues that the court lacks personal jurisdiction over him and that the SEC has not stated an FCPA claim against him. (See Baros Mem.) The court agrees that the SEC's claims-all of which accrued more than five years before the SEC filed suit, and seek relief that is at least partly penal, not solely remedial-are time-barred. Accordingly, the court dismisses the amended complaint and need not address
The court begins by providing some background on the relevant statute of limitations,
A. Section 2462 and Kokesh
No specific statute of limitations governs civil suits brought by the SEC to enforce the substantive provisions at issue in this case. The parties therefore agree that, to the extent the SEC's suit is subject to any statute of limitations, the relevant statute of limitations can be found at § 2462, which provides as follows:
Except as otherwise provided by Act of Congress, an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise, shall not be entertained unless commenced within five years from the date when the claim first accrued if, within the same period, the offender or the property is found within the United States in order that proper service may be made thereon.
On its face, § 2462 applies only to actions to enforce "fine[s], penalt[ies], [and] forfeiture[s]." When the SEC filed this suit, it was uncertain whether § 2462 applied to actions by the SEC for disgorgement of allegedly ill-gotten gains. Most courts held that § 2462 did not apply to SEC disgorgement actions. See, e.g., SEC v. Kokesh,
Shortly after the SEC filed this suit, the Supreme Court, in a unanimous opinion by Justice Sotomayor, concluded that "SEC disgorgement constitutes a penalty," and thus that § 2462 requires the SEC to bring any claim for disgorgement within five years of the date such claim accrues. Kokesh,
B. Civil Penalties and Disgorgement
The court first considers whether, following Kokesh, the SEC may pursue claims for monetary relief against either Defendant. The answer to this question would appear to be that such relief is time-barred. The parties agree that each transaction alleged in the amended complaint took place sometime between May 30, 2007, and April 15, 2011. (Cohen Mem. at 12-15; SEC Opp'n (Dkt. 50) at 20-21.) Thus, even the most recent transaction occurred more than five years before the SEC filed suit on January 26, 2017, so claims based on those transactions would be untimely under § 2462. See Gabelli v. SEC,
The SEC offers three arguments, however, as to why its claims for monetary relief are at least partly timely. First, the SEC argues that the court should not consider Defendants' statute-of-limitations argument on a motion to dismiss, as § 2462"only applies to remedies," and the question of what remedies are available should be decided at a later stage of this proceeding. (SEC Opp'n at 3-4, 16.) Second, the SEC argues that its claims against Cohen for monetary relief are timely to the extent they are based on the four most recent transactions alleged in the amended complaint
1. The court may consider a § 2462 defense on a motion to dismiss.
The court can and should consider Defendants' statute-of-limitations defense on a motion to dismiss. Although statutes of limitations are ordinarily affirmative defenses, a court may dismiss a complaint for failure to state a claim if the allegations in the complaint, taken as true, show that relief is barred by the applicable statute of limitations. Jones v. Bock,
While it is true that § 2462 speaks in terms of time-barred remedies, there is nothing unusual about the partial dismissal of claims to the extent they seek time-barred
That the SEC seeks injunctive relief does not alter this conclusion. The SEC argues that even if § 2462 does apply to claims seeking injunctive relief, the requested injunction must be "punitive." (SEC Opp'n at 14-15.) Whether the requested injunction is punitive, the SEC contends, will depend on facts the Commission hopes to develop in discovery and to present at trial. (Id. ) The court rejects the argument that it cannot, or should not, consider a statute-of-limitations defense on a motion to dismiss so long as the plaintiff seeks injunctive relief. At this stage, the court may consider whether, based on the allegations in the SEC's amended complaint, an injunction would operate as a penalty. Cf. Kokesh,
Nor will the court defer resolution of Defendants' statute-of-limitations defense so that the SEC may conduct additional discovery. Although the SEC is unaware of Baros engaging in any wrongful conduct within the five-year limitations period, it nevertheless purports to "reserve[ ] the right to conduct additional discovery on the subject." (SEC Opp'n at 16 n.8.) As Baros correctly notes in his reply brief, it would make no sense if the SEC could evade the statute of limitations by alleging untimely misconduct and then demanding discovery in hopes of uncovering misconduct within the limitations period. (Baros Reply (Dkt. 45) at 5 n.3.) The court will not authorize such a fishing expedition. Likewise, although the SEC does not challenge Cohen's computation of when its claims against him accrue, it also purports to "reserve[ ] the right to argue, based on facts developed in discovery, that the underlying violations accrued later than Cohen contends and that his entire corrupt scheme is timely for penalty and disgorgement purposes." (SEC Opp'n at 21.) The SEC cites no authority for the proposition that it may resist a motion to dismiss on statute-of-limitations grounds by suggesting that discovery might reveal timely misconduct not alleged in its complaint.
Nor are the SEC's claims for monetary relief against Cohen timely simply because he agreed to toll the statute of limitations applicable to those claims. Between November 2012 and June 2014, the SEC and Cohen executed three tolling agreements. (See Nov. 28, 2012, Tolling Agreement (Dkt. 48-3); Dec. 23, 2013, Tolling Agreement (Dkt. 48-4); June 23, 2014, Tolling Agreement (Dkt. 48-5).)
The parties disagree about which transactions "arose out of" the LIA investigation. The SEC contends that because its entire investigation into Och-Ziff's dealings in Africa arose from its LIA investigation, Cohen agreed to toll the statute of limitations with respect to all the transactions alleged in the amended complaint, not just the LIA Investment and the Libya Real Estate Project. (SEC Opp'n at 18.) Cohen agrees that he consented to toll the statute of limitations with respect to those two transactions. (Cohen Mem. at 12.) Because those transactions took place in 2007 and 2008, respectively, however, he maintains that the SEC's penalty and disgorgement claims based on those transactions are untimely notwithstanding the tolling agreements. (Id. at 13-14.) Cohen argues that he did not agree to toll the statute of limitations with respect to the remaining alleged transactions, which he asserts arose from the separate investigation In the Matter of Och-Ziff Capital Management LLC (SEC Dkt. B-02790), which the Commission opened in March 2013. (Cohen Mem. at 12.)
To determine which transactions "arose out of" the LIA investigation, the court interprets the tolling agreements in light of general principles of contract law. See, e.g., United States v. FedEx Corp., No. 14-CV-00380 (CRB),
Applying those principles, the court concludes that the tolling agreements at issue do not apply to the SEC's claims, to the extent those claims are based on transactions other than the LIA Investment and the Libya Real Estate Project. By their plain terms, those agreements only tolled the statute of limitations applicable to actions arising out of the SEC's LIA investigation-not actions arising out of investigations that themselves arose out of the LIA investigation. Nor did these tolling agreements use the sort of broad, open-ended language that might have evinced the parties' mutual intent to extend the statute of limitations applicable to any claims the SEC might bring. The agreements referred only to actions or proceedings against Cohen "arising out of" the LIA investigation, which focused on bribery and related books-and-records and internal-controls violations by corporations and their affiliates conducting business with the LIA. (LIA Investigative Order at I(A)-(D).) Nothing in the agreements indicates that the parties intended them to apply to claims based on transactions unrelated to the LIA. Indeed, by the time the SEC executed the second and third agreements, it had already opened a separate investigation into Och-ZifF's alleged misconduct in or pertaining to sub-Saharan Africa. It is implausible that the parties manifested their intent to toll the statute of limitations with respect to claims arising from this separate investigation by referring only to the LIA investigation.
In support of its argument that the tolling agreements should be read as applying to claims based on Cohen's alleged conduct outside of Libya, the SEC relies heavily on SEC v. Mannion, No. 10-CV-3374,
3. The SEC's claims for disgorgement are untimely.
Nor are the SEC's claims timely to the extent they seek disgorgement rather than civil penalties. The SEC argues that its "disgorgement claims" accrued only when (and apparently each time) Defendants received ill-gotten gains as a result of the allegedly corrupt transactions discussed above. (SEC Opp'n at 21-22.) Although the amended complaint does not allege that Defendants received any ill-gotten gains, the SEC contends that "it is reasonable to infer" that they were compensated for their participation in these alleged schemes throughout their respective tenures at Och-Ziff (which allegedly ended within the applicable limitations periods). (Id. at 22.) The SEC thus maintains that it is entitled to discovery regarding how much of Defendants' compensation within the limitations period "was derived from their corrupt activities." (Id. ) These arguments suffer from two fatal flaws.
The first is that the statute of limitations runs from when Defendants allegedly engaged in misconduct, not when they received compensation in connection with that misconduct. See Gabelli,
The second is that, if the SEC were correct that a claim for disgorgement accrues only when the defendant receives ill-gotten gains in connection with an unlawful transaction, that would mean Defendants' receipt of ill-gotten gains was an element of the SEC's "disgorgement claims," which the SEC would need to have plausibly alleged in its complaint. Because the Commission has not actually alleged that Defendants received any ill-gotten gains, the court would therefore need to dismiss the SEC's "disgorgement claims" for failure to state a claim. While the SEC argues in opposition to Defendant's motion that it is "reasonable to infer that Defendants were compensated" for their efforts in support of the alleged schemes, this supposition is no substitute for well-pleaded allegations. See Tomlins v. Vill. of Wappinger Falls Zoning Bd. of Appeals,
The SEC did not file this suit until more than five years after its claims accrued, and the tolling agreements it executed with Cohen do not render its claims timely. Accordingly, § 2462 bars the SEC's claims to the extent the Commission seeks monetary relief.
C. Injunctive Relief
That leaves the court to consider whether the suit may proceed to the extent the SEC seeks injunctive relief. In addition to seeking civil penalties and disgorgement, the SEC also seeks to enjoin Defendants from violating (in the future) the securities laws they are alleged to have violated in the past. The parties disagree over whether the SEC's requested "obey-the-law" injunction is a "penalty": Cohen argues that such injunctions are penalties under Kokesh, while the SEC argues that procedurally proper injunctions by definition cannot be penalties. (Compare, e.g., Cohen Mem. at 8-10, with SEC Opp'n at 5-14.)
On its face, § 2462 applies only to an action seeking a "civil fine, penalty, or forfeiture"-a list that does not include injunctions. Prior to Kokesh, the Second Circuit and numerous other courts had "largely rejected" arguments that injunctions were necessarily penalties for purposes of § 2462. Saltsman,
Other courts held, however, that an injunction is a penalty, and thus subject to § 2462, if it is punitive rather than remedial. See, e.g., Johnson v. SEC,
Cohen argues that the Court's reasoning in Kokesh compels the conclusion that the SEC's requested injunction is a penalty for purposes of § 2462, and thus that the SEC's claims are time-barred. (See Cohen Reply in Supp. of Mot. to Dismiss (Dkt. 51) at 9-11.) Kokesh addressed the application of § 2462 to SEC disgorgement, not obey-the-law injunctions.
The notion that injunctions are categorically exempt from § 2462 is inconsistent with Kokesh. The SEC argues that its demand for injunctive relief is not subject to § 2462 because the plain text of that statute does not refer to injunctions. (SEC Opp'n at 6-7.) The same could be said of disgorgement, but the Court nonetheless concluded that SEC disgorgement was as a § 2462 penalty. See Kokesh,
That leaves the court to consider the injunction sought by the SEC in this case. The court concludes that such an injunction would function at least partly as a penalty, and thus is subject to § 2462, for the following reasons.
First, the SEC seeks this injunction to redress alleged "wrong[s] to the public," not just "wrong[s] to individuals." See id. at 1642 (internal quotation marks and citation omitted). The violations alleged in the amended complaint were "committed against the United States rather than an aggrieved individual." See id. at 1643. No private right of action exists to enforce the FCPA bribery, books-and-records, and internal-controls provisions that Defendants are alleged to have violated. See Republic of Iraq v. ABB AG,
Second, the requested injunction would operate at least in part as a penalty. Based exclusively on allegations that Defendants engaged in misconduct five to ten years before the SEC filed suit, the Commission seeks to enjoin them to comply with the securities laws they allegedly violated before. As the parties agree, this injunction would impose no duties on Defendants beyond their existing duty to obey the law. (Cohen Mem. at 8 n.1; SEC Opp'n at 10-11.) What this injunction would do, however, is mark Defendants as lawbreakers and "stigmatize [them] in the eyes of the public." SEC v. Gentile, No. 16-CV-1619 (JLL),
It is true that the requested injunction may have some remedial effects. If this case were to proceed to trial, the SEC might show that, notwithstanding the fact that Defendants no longer work for Och-Ziff, they present a "cognizable danger of recurrent violation" of the securities laws. See SEC v. Wyly,
The court acknowledges that this conclusion is in tension with the Eighth Circuit's recent decision in Collyard. In that case, the Eighth Circuit reserved decision on whether an injunction can ever be a § 2462 penalty.
The court need not decide whether an SEC obey-the-law injunction is always a penalty for purposes of § 2462. It concludes only that, in this case, the SEC's requested injunction would function at least partly to punish Defendants and is therefore a penalty for purposes of § 2462. Accordingly, the court concludes that the SEC's claims are just as time-barred insofar as they seek injunctive relief as they are insofar as they seek penalties or disgorgement.
IV. CONCLUSION
For the reasons stated in this Memorandum and Order, the court concludes that the SEC's claims are untimely. The court therefore grants Defendants' motions to dismiss the amended complaint for failure to state a claim (Dkts. 41 and 46) and DISMISSES the amended complaint with prejudice. The Clerk of Court is respectfully directed to enter judgment for Defendants and to close this case.
SO ORDERED.
Notes
The parties dispute which Och-Ziff entities employed Defendants. The SEC alleges that both Defendants worked for OZCM. (Am. Compl ¶¶ 17-18.) Baros observes, however, that the amended complaint "obscures" the fact that he actually worked for a U.K. subsidiary of OZCM, Och-Ziff Management Europe Ltd. ("OZ Europe"), rather than for OZCM itself. (Baros Mem. at 1, 4; see also Am. Compl. ¶ 18 ("Baros was employed by and acted as an agent of [OZCM] through his employment, duties, and responsibilities at [OZ Europe], a wholly owned and controlled subsidiary of [OZCM] and an affiliated investment adviser to OZ Management.").) Cohen argues that he only advised the offshore funds that are the focus of the SEC's claims on behalf of Africa Management Limited, a foreign-domiciled joint venture of Och-Ziff and certain of its South African business partners, and that the SEC's claims against him under the Investment Advisers Act of 1940 (the "Advisers Act") are thus impermissibly extraterritorial. (Cohen Mem. at 16-28.) The court need not reach these arguments, as the SEC's claims are untimely regardless of which entities actually employed Defendants.
The Canadian Mining Company is Africo Resources Ltd., and the mine was the Kalukundi mine in Katanga Province, DRC. Some former Africo shareholders are currently seeking restitution from OZ Africa in connection with its Rule 11(c)(1)(C) guilty plea. See, e.g., Africo Owners' Letter Requesting Victim Designation (Dkt 26) United States v. OZ Africa Mgmt. GP, LLC, No. 16-CR-515 (E.D.N.Y. filed Feb. 20 2018)
Federal prosecutors have also pursued criminal charges against two of the entities involved in this case. On September 29, 2016, the Government filed a 43-page criminal information charging OZCM with bribery of DRC officials, conspiracy to bribe Libyan officials, and books-and-records and internal-controls violations. Information (Dkt. 8), United States v. Och-Ziff Capital Mgmt. Grp., No. 16-CR-516 (NGG) (E.D.N.Y. Sept. 29, 2016) ("OZCM"). OZCM pleaded not guilty to the charges and entered into a three-year deferred prosecution agreement ("DPA") under which it intends to pay a $213-million penalty following entry of judgment against its Africa-focused subsidiary, OZ Africa Management GP, LLC ("OZ Africa"), pursuant to a guilty plea. DPA (Dkt. 11), OZCM. The same day, OZ Africa pleaded guilty under Rule 11(c)(1)(C) of the Federal Rules of Criminal Procedure to one count of conspiracy to bribe DRC officials in violation of the FCPA. Information (Dkt. 8), United States v. OZ Africa Mgmt. GP, No. 16-CR-515-1 (NGG) (E.D.N.Y. Sept. 29, 2016) ("OZ Africa"): Plea Agreement (Dkt. 11), OZ Africa. Those proceedings remain pending before this court, and some of the Canadian Mining Company's former shareholders have asserted claims that they are entitled to restitution in connection with OZ Africa's guilty plea. E.g., Africo Owners' Letter Requesting Victim Designation, OZ Africa.
Prosecutors have also brought criminal charges against Samuel Mebiame ("Agent 2" in the SEC's amended complaint), who pleaded guilty to a single count of conspiracy to commit bribery in violation of the FCPA, based on his participation in a conspiracy to bribe Nigerien, Chadian, and Guinean government officials to obtain mining rights. Information (Dkt. 19), United States v. Mebiame, No. 16-CR-627 (NGG) (E.D.N.Y.) ("Mebiame"); Tr. of Plea Hr'g. (Dkt. 23) 22:15, 23:6-24:7, Mebiame. (Cf. Am. Compl. ¶ 85.) Last year, the court sentenced Mebiame to 24 months' imprisonment. J. (Dkt. 31), Mebiame.
Finally, while the instant motions to dismiss were pending, Cohen was charged in a ten-count indictment with investment-adviser fraud, wire fraud, obstruction of justice, lying to the Government, and related conspiracy charges. Indictment (Dkt. 1), United States v. Cohen, 17-CR-544 (NGG) (E.D.N.Y.). The obstruction and false-statement charges were premised on allegations that Cohen, among other things, interfered with the SEC's investigation by (1) inducing Agent 1 to draft a letter falsely stating that the proceeds from the London Holding Company Transaction would not be used to repay the Super Yacht Loan, and (2) falsely stating that the letter was not backdated. Id. ¶¶ 28-35.
Although personal jurisdiction is generally a threshold issue that must be addressed before the court rules on the merits, the court may assume that it has personal jurisdiction over Baros for purposes of this motion because it indisputably has personal jurisdiction over Cohen, "[D]efendants collectively challenge the legal sufficiency of the [SEC's] cause of action," and that challenge is dispositive of the SEC's claims. Chevron Corp. v. Naranjo,
These four transactions are the $130 Million Margin Loan, the $77 Million Stock Transaction / $52 Million Stock Windfall, the Congo-Brazzaville Oil Field Transaction, and the London Holding Company Transaction. (SEC Opp'n at 21 tb1.).
Additionally, as Cohen argues in his reply brief, it would make little sense for the SEC to argue " 'based on the facts developed in discovery, that the underlying violations accrued later' " than he contends. (Cohen Reply at 5 n.3.) An action seeking a § 2462"penalty" "must be commenced within five years of the date the claim accrues." Kokesh,
These tolling agreements are both expressly referenced in the amended complaint (Am. Compl. ¶¶ 202-03) and integral thereto, and no party has objected to their consideration on this motion.
The court further notes that Baros's tolling agreement, executed on March 2, 2016, specifically identifies the "investigation" in question as In the Matter of Och-Ziff Capital Management LLC. (Mar. 2, 2016, Baros Tolling Agreement Dkt. (52-1) at 1.)
Cohen also argues that because the SEC drafted the tolling agreements, those agreements should be construed against the drafter. (Cohen Reply at 7 & n.5.) Because the best reading of the agreements is that they do not cover claims arising out of In the Matter of Och-Ziff Capital Management LLC, the court need not reach this argument.
Similarly, the SEC argues that it may seek an associational bar against Defendants under the Advisers Act. (SEC Opp'n at 15-16.) Because the SEC does not seek an associational bar in its prayer for relief, the court declines to consider whether the amended complaint might be timely on this basis, though it notes that many of the arguments for why an obey-the-law injunction is a § 2462 penalty would seem to apply with equal or greater force to associational bars.
Baros makes arguments similar to Cohen's and also notes that he is shielded by § 2462 because he was present in the United States during the time period in question. (Baros Mem. at 7.) The SEC does not appear to contest this assertion or to argue that the § 2462 limitations period tolls while the defendant is outside the United States. See Straub,
The SEC argues that injunctions are not penalties for purposes of § 2462 because federal securities laws separately authorize the SEC to seek "penalties" and "injunction[s]." (SEC Opp'n at 5-6.) By this logic, disgorgement could not be a penalty either, because the Exchange Act refers repeatedly to "disgorgement." See, e.g., 15 U.S.C. § 78u(d)(4) (prohibiting the use of disgorgement funds to pay attorneys' fees);
The Eighth Circuit also noted that, while the SEC's requested injunction would specifically deter the defendant from violating the securities laws, it "likely does little to deter people other than [him]," and "[n]ot every injunction that specifically deters an individual is imposed to punish." Collyard,