NEW YORK – Platinum Partners hedge fund founder Mark Nordlicht and four others with ties to the New York City-based hedge fund were charged Monday in a $1 billion securities fraud indictment, one of the largest alleged scams since Bernard Madoff’s notorious Ponzi scheme.
Brooklyn federal prosecutors who announced the eight count indictment said two additional suspects were indicted for their alleged roles in a $50 million bond fraud involving Black Elk Energy, one of Platinum Partners’ largest portfolio companies.
The hedge fund’s management companies “projected stability and confidence” to current and prospective investors, reporting positive average returns of 17% from 2003-2015, according to a parallel civil lawsuit filed by the Securities and Exchange Commission.
Inside, however, the management firms faced a worsening liquidity crisis at times referred to in company documents as “Hail Mary time,” along with “relentless” redemption requests from investors seeking their money back, federal prosecutors and the SEC said.
Nordlicht and his alleged co-conspirators knew that one of the company’s chief funds faced financial trouble as early as 2012, the indictment charged. As the situation turned desperate, the suspects allegedly defrauded investors by overvaluing the company’s largest assets, concealing cash flow problems at Platinum’s signature fund and paying preferential repayments to some customers.
“Nordlicht and his cohorts engaged in one of the largest and most brazen investment frauds perpetrated on the investing public, earning Plantinum more than $100 million in fees during the charged conspiracy,” Brooklyn U.S. Attorney Robert Capers said in a statement announcing the charges. The secret financial implosion “eventually led to Nordlicht and his co-conspirators operating Platinum like a Ponzi scheme, where they used loans and new investor funds to pay off existing investors,” said Capers.
Platinum declined to comment on the allegations.
Founded in 2003, Platinum Partners is an investment management group that as recently as March reported to the SEC and other regulators that it had $1.7 billion in assets under management. The firm manages multiple funds, but most assets were invested through Platinum Partners Value Arbitrage Fund and Platinum Partners Credit Opportunities Master Fund.
Defendants charged with Nordlicht, 48, of New Rochelle, N.Y. include: David Levy, 31, a New York City resident and the company’s co-chief investment officer; Uri Landesman, 55, of New Rochelle, the former president of Platinum’s signature fund: Joseph SanFilippo, 38, of Freehold, N.J., the CFO of the signature fund; Joseph Mann, 24, of Brooklyn an investor and finance official; Daniel Small, 47, of New York City, a former managing director; and Jeffrey Shulse, 44, of Houston, the former CEO of Black Elk Energy Offshore Operations.
Prosecutors cited company records that documented the financial crisis hidden from investors. In a Nov. 2012 email exchange with Landesman, Nordlicht wrote “It’s just very daunting. It seems like we make some progress and then [redemptions] are relentless almost.”
The following month, Nordlicht forwarded an email to Landesman showing he had informed a co-conspirator that he wife was urging him to leave for Israel.
Many of Platinum’s investors are observant members of the Jewish religious community, The Wall Street Journal reported, citing unidentified people familiar with the matter.
Platinum’s management hid the red ink in part by claiming a position in Golden Gate Oil LLC was valued at roughly $170 million. In reality, it was worth a fraction of that total, the SEC complaint said.
The executives also allegedly misled investors about the cash crunch.
Records of a Jan. 2015 conference call with investors show Nordlicht said: “If we look historically, we’ve been very very fortunate … we’re running about a billion four between all our different entities … I think we’ve returned about double that in cash to investors, so that is really an indication of … being very liquid and nimble.”
By 2016, however, the financial crisis had emerged in public view. In June, former Platinum executive Murray Huberfeld was indicted on alleged conspiracy charges with Norman Seabrook, head of the New York City corrections officers union. They have pleaded not guilty.
In July, Platinum told investors it had hired an independent monitor to oversee the liquidation of its two principle hedge funds.
Platinum Partners also said that month it would likely to return the assets of its largest and oldest fund to clients as the result of the arrest of a longtime associate on charges he arranged a $60,000 bribe in an effort to land a crucial investment from the New York City correction officers union.
In August, Platinum Partners Value Arbitrage Fund (International) Limited and Platinum Partners Value Arbitrage Fund L.P. were placed into liquidation and provisional liquidation, respectively, under orders issued by the Grand Court of the Cayman Islands, according to the company’s website.
Though the alleged securities fraud is large, it’s well below the as much as $20 billion investment scam Madoff ran for decades until his operation collapsed in Dec. 2008.