United States v. OZ Africa Mgmt. GP, 16-CR-515 (NGG)

UNITED STATES OF AMERICA, v. OZ AFRICA MANAGEMENT GP, LLC, Defendant.

16-CR-515 (NGG)

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK

August 28, 2019

MEMORANDUM & ORDER

TO BE FILED UNDER SEAL

NICHOLAS G. GARAUFIS, United States District Judge.

In the aftermath of Defendant OZ Africa Management LLC's guilty plea in this case, about fifty former shareholders ("Claimants") of the Canadian mining company Africo Resources Ltd. ("Africo") seek restitution pursuant to the Mandatory Victims Restitution Act, 18 U.S.C. § 3663A (the "MVRA"), for losses they allegedly incurred as a result of Defendant's bribery of corrupt officials in the Democratic Republic of the Congo ("DRC"). (Feb. 20, 2018 Claimants Mem. in Supp. of Rest. ("Claimants Mem.") (Dkt. 26).) The Government and Defendant oppose an order of restitution. (See Def. Sentencing Mem. ("Def. Mem.") (Dkt. 37); Mar. 2, 2018 Gov't Letter Regarding Restitution ("Gov't Mem.") (Dkt. 39); July 13, 2018 Gov't Letter Regarding Restitution ("Gov't Suppl. Mem.") (Dkt. 48).)

For the following reasons, the court finds that Claimants are victims of Defendant's crime under the MVRA and directs the parties to submit supplemental briefing regarding how to calculate the appropriate restitution amount.

I. BACKGROUND

A. Facts¹

As of 2006, Africo indirectly held rights to develop the Kalukundi Mine, a copper and cobalt mine in the southern region of the DRC. (Claimants Mem. at 2-3.) According to Claimants, Africo held a 75 percent interest in the Kalukundi mining rights, while DRC state-owned entity Gecamines held the remaining 25 percent interest.² (Id. at 2 n.2.) Claimants aver that they invested ample time and resources into developing the mine. (Id. at 2-3.)

In 2006, a former Africo employee sued Africo in DRC for wrongful termination and obtained a $3 million ex parte default judgment (the "Default Judgment"). (Gov't Mem. at 2; Statement of Facts ¶ 24.) A DRC court allowed the former employee to auction off Africo's interest in the Kalukundi Mine to satisfy the judgment, again without notice to Africo. (Gov't Mem. at 2.) The former employee then sold the mining rights at issue to Akam Mining SPRL ("Akam"), a DRC mining company. (Id.) Africo did not learn that its mining rights had been expropriated until April 2007, when Gecamines publicly confirmed that Akam held the majority interest in the Kalukundi Mine. (Gov't Mem. at 3.) Africo then fought the expropriation "with some limited success in the DRC courts," including by obtaining the DRC Supreme Court's review of the Default Judgment. (Id.; see Statement of Facts ¶ 24.) Per Claimants, their counsel reassured them that the default judgment would be overturned through the DRC legal process, so they initially continued to work towards the development of the mine. (Claimants Mem. at 3.)

Unbeknownst to Claimants (id. at 3-4), a DRC senior government official, "DRC Official 2," structured these transactions to convey Africo's interest in the Kalukundi Mine to Dan Gertler, an Israeli billionaire active in the DRC mining sector and close to various high-ranking DRC officials. (Statement of Facts ¶ 24 ("In fact, DRC Official 2 had orchestrated the taking of Africo's interest in the DRC Mine and made it available to DRC Partner."); see Claimants Mem. at 2 (identifying Dan Gertler as the "DRC Partner").) Between December 2007 and March 2008, Gertler discussed the possibility of using Defendant's money to acquire the Kalukundi mining rights with Defendant's employees. (Id. ¶¶ 16-27.) As part of the agreement negotiated between Gertler and Defendant, Defendant invested $150 million in "Camrose," a special-purpose entity controlled by Gertler. (Id. ¶ 26; see also Gov't Mem. at 3.) Using these proceeds, Camrose (1) acquired Akam for approximately $15 million,³ (2) offered to invest $100 million in Canadian dollars in Africo in exchange for a 60 percent stake in the company, and (3) paid millions of dollars in bribes to DRC officials. (Statement of Facts ¶¶ 27-30; Gov't Mem. at 3.) The purchase of a majority stake in Africo, however, required the approval of Africo shareholders. (Statement of Facts ¶ 30.)

The success of this scheme thus depended at least in part on the DRC Supreme Court not invalidating the ex parte default judgment before Africo's shareholders could vote on whether to accept the Camrose investment. In June 2008, "to ensure that Africo did not obtain a favorable court ruling in its case against Akam that could have affected the outcome of the Africo shareholder vote," Gertler arranged for the payment of bribes to DRC officials, including judges involved in the case. (Id. ¶¶ 31-33.) Gertler's in-country representative negotiated these bribesto ensure that Africo would lose the case and that the decision would not be announced until June 13, 2018—the day after Africo shareholders were scheduled to vote on whether to approve Camrose's proposed acquisition of the company.⁴ (Id. ¶¶ 33-34; Gov't Mem. at 3-5.)

On June 12, 2008, Africo shareholders voted to accept Camrose's takeover. (Statement of Facts ¶ 35.) Allegedly, they remained unaware of Gertler and Defendant's bribery. (Claimants Mem. at 4.) Per Claimants, their vote to allow the takeover was the result of a "Hobson's choice" between "ced[ing] control of the Kalukundi mine to Gertler and his concealed conspirators, or risk[ing] . . . that the DRC Supreme Court might sustain the default judgment depriving the Africo Owners of their mining rights entirely."⁵ (Claimants Mem. at 4.) Rather than developing the mine, the conspirators consolidated it with other mining assets and transferred those assets among various entities, and Defendant eventually obtained $91,181,182 in profit. (Statement of Facts ¶¶ 37-58.) Subsequently, in 2013, additional resources at the Kalukundi mine were discovered, increasing its value. (See Claimants Mem. at 24; Sealed Rigby Rep. ("Rigby Rep.") (Dkt. 26-6) ¶ 16).) The mine remains undeveloped. (See Def. Mem. at 15-18.) Claimants suggest that Africo would have developed the mine if Africo had retained control of it. (See Claimants Mem. at 24-25). Defendant contends that there are several other reasons why the mine has not been developed, even through several sets of owners, and that Claimants have continued to play a role in the mine's management and the failure to develop it. (See Def. Mem. at 15-18.)

B. Procedural History

On September 29, 2016, Defendant waived indictment and pleaded guilty to one count of conspiracy to bribe DRC officials in violation of the Foreign Corrupt Practices Act. (Information (Dkt. 8); Waiver of Indictment (Dkt. 9); Plea Agreement (Dkt. 11).) The plea was entered pursuant to Federal Rule of Criminal Procedure 11(c)(1)(C) and conditioned on the recommendation that the court not impose a criminal fine on Defendant, provided that Och-Ziff Capital Management Group LLC (Defendant's ultimate parent company ("Och-Ziff")) and its affiliates paid a monetary penalty of $213,055,689, as provided for in Och-Ziff's deferred prosecution agreement. (Plea Agreement ¶ 20.) Although this portion of the plea agreement was silent as to restitution, the plea agreement provided elsewhere that "any fine or restitution imposed by the Court will be due and payable within ten (10) business days of sentencing." (Id. ¶ 12 (emphasis added).)

On February 20, 2018 (two weeks before Defendant was scheduled to be sentenced), Claimants—about fifty shareholders who owned collectively about 64% of Africo in or around April 2008 (Claimants Mem. at 1 n.1)—filed a motion "requesting confirmation of victim status" and an award of restitution pursuant to the MVRA. (Claimants Mem.) They seek sufficient restitution to "make them whole," which, by the most optimistic calculations of a mining valuation expert, Dr. Neal Rigby, runs to the estimated $1.8 billion value of Africo's share of the Kalukundi Mine, had it actually been developed as Africo had planned. (Rigby Rep. ¶ 4.) Defendant opposes the payment of any restitution. (See generally Def. Mem.) In a March 2, 2018 memorandum, the Government contended that Claimants may be victims of Defendant's bribery scheme, but that they were not entitled to restitution on the then-existing evidentiary record for two reasons. (Gov't Mem. at 13-16.) First, Claimants had not shown direct orproximate causation for quantifiable harm from Defendant's conduct specifically. (Id.) Defendant was not responsible for the initial theft of Africo's Kalukundi mining rights, which was "the major basis for the losses that Claimants sustained" and occurred before Defendant first engaged in conduct in support of the conspiracy. (Id. at 13-15.) Second, Claimants' damages were too speculative to merit a restitution award because calculating them would depend on "many variables and unknowns that go far beyond the facts on which the parties are operating from the plea agreement." (Id. at 15-16.)

On March 6, 2018, Claimants submitted a reply, asking the court to reject what they characterized as the Government's "two-conspiracy theory"—i.e., that there were effectively two separate conspiracies: one to steal the Kalukundi mining rights and a second, which Defendant joined, to retain those mining rights. (Mar. 6, 2018 Claimants Mem. in Supp. of Restitution ("Claimants Suppl. Mem.") (Dkt. 40) at 16; but see Apr. 5, 2018 Status Conf. Tr. ("Tr.") (Dkt. 50) at 14:6-15:3 (Government resisting the "two-conspiracy" notion and asserting instead that there was one charged conspiracy from 2007-2013 and "pre-conspiracy conduct," including the theft of Claimants' mining rights, in which Defendant was not involved).) On April 5, 2018, the court held a status conference at which the parties expanded on their arguments. Two weeks later, Claimants' counsel met with the Government and presented additional evidence in support of their restitution claim. (See Apr. 26, 2019 Gov't Letter (Dkt. 45).) On June 28, 2018, Claimants submitted a letter describing...