Fraud Probe Ricochets Through Platinum Partners, A Hedge Fund With Ties To Jewish Community

For his son’s bar mitzvah in 2008, hedge-fund manager Murray Huberfeld chartered a JetBlue plane and invited hundreds to an oceanfront party in Palm Beach, Fla. An Orthodox pop star known as the “Jewish Elvis” entertained the guests, who Mr. Huberfeld says included investors in his fund.

Intimate ties and fundraising inside a close-knit world of observant Jewish businesspeople in New York, Florida and Israel are central to the $1.25 billion hedge-fund firm Mr. Huberfeld has helped lead, Platinum Partners. Now those ties are being tested as two sets of federal prosecutors as well as securities regulators delve into Platinum’s operations.

In early June, Mr. Huberfeld was arrested in connection with an alleged scheme to bribe a union leader to funnel $20 million to Platinum. Later in June, federal agents raided Platinum’s New York offices.

An issue for investigators now, according to those familiar with their probe, isn’t just alleged bribery but the integrity of Platinum itself: It is also a fraud investigation.

Platinum has recorded some of the most impressive numbers in the hedge-fund world, double-digit average annual returns for over a decade.

Beginning around 2012, however, with some investors wanting their money back, Platinum began borrowing heavily. According to documents reviewed by The Wall Street Journal and people familiar with the firm, Platinum borrowed hundreds of millions of dollars, some of it at double-digit interest rates.

In one instance, it paid interest to a lender part-owned by family-member trusts of Mr. Huberfeld and Mark Nordlicht, Platinum’s founder and chief investment officer.

In June, Platinum suspended redemptions from its flagship fund and stopped giving performance updates. It moved to liquidate the fund and discussed plans to repay investors but didn’t commit to giving to them cash matching the full investment gains the firm has reported. Last week, Platinum said it would also liquidate the rest of the firm.

Investigators now are looking into whether, before the suspension, Platinum had been paying some reported investment gains to exiting investors with money from incoming ones, according to people familiar with the probe.

They also are scrutinizing the firm’s service providers, including auditors who certified its figures.

Platinum has invested in exotic assets that can be hard to value, such as loans to struggling companies and annuities linked to ill patients’ lives. Among questions investigators seek to answer is whether Platinum misstated values of some holdings, the people familiar with the probe said.

Platinum spokesman Montieth Illingworth defended the firm’s auditing and valuation methods and said it stands behind its performance record.

On specific investigative points, he said, “It is incorrect to imply that past payouts to investors were specifically made with new allocations.”

He also said money wasn’t borrowed to meet redemptions. “Past redemptions were paid out of cash gains from the positions we invested in,” Mr. Illingworth said.

Platinum said it expects to begin repaying investors in 2017. A person close to the firm said it hopes eventually to pay back all $1.25 billion, or more, with further investment gains.

Under investigation in addition to the firm is Mr. Nordlicht, said people familiar with the probe. The spokesman said they are cooperating with investigations. No one other than Mr. Huberfeld has been accused of wrongdoing.

1 reply
  1. Joe Levin
    Joe Levin says:

    Platinum Partners, the hedge fund at the center of an alleged New York City municipal union kickback scandal, has a history that’s sordid even for Wall Street — with alleged ties to one of the largest Ponzi schemes in history, and a confusing trail of documents that raise more questions than answers, The Post has learned.

    Murray Huberfeld and Mark Nordlicht, two top executives of the $1.3 billion fund, allegedly enlisted other hedgies and their wives to invest in a feeder fund for Scott Rothstein, a trustee lawsuit claimed.

    Rothstein was convicted of running a Florida Ponzi scheme and is now serving 50 years for racketeering and securities fraud, according to court documents.

    Rothstein scammed investors by getting them to bankroll fake lawsuits for litigants who couldn’t afford to pay for their own litigation, with the promise of repaying those investors with settlement money, which turned out to be fake, court documents show.

    It ran from 2005 to 2009, and ballooned to $1.2 billion in part because of the investments made by Huberfeld and Nordlicht, according to the suit.

    A group of hedgies and their wives were accused in a civil suit brought by the trustee in charge of unwinding Rothstein’s scam of knowing ahead of time that they were funding a Ponzi scheme — a claim they deny. The civil suit was settled in 2012 for $38 million.

    Platinum came into the public eye through the charges brought against Norman Seabrook, the ex-head of the NYC correction officer’s union, who pleaded not guilty on Friday to allegedly taking a $60,000 bribe for a $20 million investment in Platinum. Huberfeld has also pleaded not guilty. Nordlicht has not been charged.

    Platinum is now in the process of liquidating all three of its funds, Montieth Illingworth, a spokesman for Platinum, told The Post.

    Like Rothstein’s fund, Platinum invests in hard-to-value assets, like life settlement policies.

    Because its assets are so esoteric, investors were almost entirely dependent on Platinum to say how much they were worth. In one report obtained by The Post, the fund showed gains in 119 out of 120 months in its main credit fund.

    Illingworth told The Post that the fund used an “industry standard” metric to value its assets, but declined to describe it, or who developed those metrics.

    He added that a valuation committee, which included Nordlicht, met monthly.

    The company’s auditor, CohnReznick, didn’t return a call seeking comment.

    “Platinum Partners stands behind its performance record,” Illingworth said. “Its ability to generate returns for investors derives in the effective management of the positions.”

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