On Monday, Platinum Partners 48-year-old hedge fund founder Mark Nordlicht and four others with ties to the New York City-based hedge fund were charged in a $1 billion securities fraud indictment. It is one of the largest alleged scams since Bernard Madoff’s notorious $20 billion investment scam.
The defendants charged with Nordlicht include: Jeffrey Shulse, 44, of Houston, the former CEO of Black Elk Energy Offshore Operations, Uri Landesman, 55, of New Rochelle, the former president of Platinum’s signature fund, David Levy, 31, a New York City resident and the company’s co-chief investment officer; Joseph SanFilippo, 38, of Freehold, N.J., the CFO of the signature fund; Joseph Mann, 24, of Brooklyn, an investor and finance official; and Daniel Small, 47, of New York City, a former managing director. Brooklyn federal prosecutors who announced the 8-count indictment said two other suspects were indicted for their alleged roles in a $50 million bond fraud involving Black Elk Energy, one of Platinum Partners’ largest portfolio companies.
According to a parallel civil lawsuit filed by the Securities and Exchange Commission, the hedge fund’s management companies “projected stability and confidence” to current and prospective investors, and reported positive average returns of 17% from the period of 2003-2015.
In reality, the management firms faced a worsening liquidity crisis at times referred to in company documents as “Hail Mary time,” along with “relentless” requests for redemption from investors who sought to get their money back, federal prosecutors and the SEC said.
The indictment charged that Nordlicht and his alleged co-conspirators knew that one of the company’s chief funds faced financial trouble as early as 2012. When the situation turned desperate, the suspects allegedly defrauded investors by overvaluing the company’s largest assets, and concealed cash flow problems at Platinum’s signature fund and paid preferential repayments to some of its customers.
In a statement announcing the charges, Brooklyn US Attorney Robert Capers said “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,” 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,” Capers added.
Platinum’s management reportedly hid the red ink in part by claiming a position in Golden Gate Oil LLC was valued at approximately $170 million. It was in fact only worth a fraction of that total, according to the SEC complaint. The executives also allegedly misled investors about the cash crunch.