Hedge fund settles Azerbaijan oil bribe case

Omega Advisor to pay fine, cooperate with on-going probe into alleged scheme to gain control of Central Asian state oil company.

NEW YORK (Reuters) -- The U.S. government said Friday it had agreed not to prosecute Omega Advisors Inc., a $6 billion hedge fund, over its role in an alleged scheme to bribe Azeri officials and gain control of the Azerbaijan state oil company.

Omega will not be prosecuted for any crimes related to its investment in a privatization program in Azerbaijan, the U.S. Attorney's office in Manhattan said in a statement. Omega will forfeit $500,000 and continue to cooperate with the probe.

The agreement ends uncertainty over the case for Omega, which was founded by Leon Cooperman, a former general partner of Goldman Sachs (up $1.60 to $222.92, Charts, Fortune 500).

It also comes after recent setbacks for prosecutors in the case, which includes allegations that Czech investor Viktor Kozeny sent "planeloads of cash" into Azerbaijan in the late 1990s to acquire a controlling interest in the former Soviet republic's state oil company, SOCAR.

Omega invested more than $100 million in the privatization program in 1998 through a co-investment agreement with two companies controlled by Kozeny, prosecutors said.

Clayton Lewis, a former Omega employee who was the hedge fund's point of contact on the Azeri investment, has admitted he knew about Kozeny's alleged arrangements before he invested on Omega's behalf, prosecutors said.

Lewis pleaded guilty in February 2004 to charges of violating the Foreign Corrupt Practices Act and conspiracy to violate the act, prosecutors said.

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Omega lost all of its investment and SOCAR has not yet been privatized, prosecutors said. Omega substantially wrote down its investment in 1998. It has sued Kozeny and Lewis.

"I am happy that the government has understood that Omega has acted appropriately since it learned of Mr. Lewis' improper conduct," said Omega's lawyer Robert Anello, of Morvillo, Abramowitz, Grand, Iason, Anello & Bohrer, P.C.

In a letter to investors, Cooperman said he was pleased "the saga relating to Omega's 1998 investment in the privatization program in Azerbaijan has come to an end."

In June, a federal judge threw out most of the charges against two defendants in the case -- David Pinkerton and Frederic Bourke -- saying the indictment was filed too late.

Pinkerton was managing director of AIG Global Investment, a subsidiary of American International Group Inc (down $0.27 to $70.00, Charts, Fortune 500)., while Bourke was the principal shareholder in Blueport International Ltd, which allegedly invested in a company involved in the scheme, according to the ruling last month.

The two still face charges of making false statements. The judge has set a conference for July 17.

Kozeny was released on bail in April from a Bahamas prison where he was sent in 2005 to await extradition to the United States.