The Manhattan hedge fund embroiled in a corruption scandal involving the New York City correction officers’ union is shutting down its main fund and returning money to investors.
Platinum Partners told investors on Tuesday that the firm will wind down the fund, Platinum Partners Value Arbitrage, after it was hit with redemption requests and a wave of bad publicity, according to reports.
Former Platinum fund manager Murray Huberfeld was arrested last week and accused of bribing Norman Seabrook, president of the Correction Officers’ Benevolent Association, in return for a $20 million investment in Platinum.
Platinum founder Mark Nordlicht told investors on the call that the allegations were untrue, according to reports. Huberfeld declined to comment last week after he was charged.
Platinum is also considering shutting down Huberfeld’s former fund, Platinum Partners Credit Opportunities Fund, the smaller of the two funds.
COBA has declined comment on whether it has asked for a redemption, or on its returns with Platinum.
Platinum declined to comment on the closing of the fund, which was first reported by the Wall Street Journal.
On its Web site, Platinum Partners claims to have more than $1.3 billion under management, and investor documents obtained by the Wall Street Journal say its two main funds have never reported a down year in the firm’s history.
But according to criminal complaint unsealed after Seabrook and Huberfeld were busted by the FBI on June 8, Platinum’s money woes started well before the alleged kickback scandal prompted investors to yank their money.
Platinum was scrambling to get its hands on more COBA money in late November 2014 “because of $44 million in looming redemptions … at year end.”
Court papers in a state court suit show Platinum has been struggling under the weight of an unpaid, high-interest $30 million loan. In that separate breach-of-contract claim, the lender behind that $30 million, 15-percent loan, New Mountain Finance, claims the fund missed its first $7.5 million payment.
The hedge fund pledged its own, $30 million loan to an oil- and gas-exploration company as collateral, court papers say.
In addition to the New Mountain case, Platinum is tied to a pair of other suits involving its investment in Navidea Biopharmaceuticals, a cancer-drug company.
In one suit, pending in Manhattan federal court, a Platinum fund is accused by a Navidea shareholder of making nearly $330,000 in illegal, “short-swing” profits by purchasing and selling shares within six months at the same time it held a stake of more than 10 percent in the company had a director on its board.
In the other, Navidea is being sued in Harris County (Tex.) District Court by the Capital Royalty Partners II finance company and others over a $60 million loan gone bad.
Navidea has never tapped into a roughly $10 million line of credit provided by Platinum, its largest shareholder — indicating that Platinum doesn’t have the money to lend, according to a source close to the situation.
A source familiar with Platinum’s money troubles said what initially appeared to be a simple case of “these guys are having liquidity problems” was “obviously mushrooming into quite a more significant mess.”