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Platinum Partners’ Founder Indicted in $1B Fraud

New York-based hedge fund Platinum Partners’ founder Mark Nordlicht and six other men ran their company “like a Ponzi scheme,” federal prosecutors said on Monday, unsealing a 49-page indictment.


BROOKLYN, N.Y. (CN) — New York-based hedge fund Platinum Partners’ founder Mark Nordlicht and six other men ran their company “like a Ponzi scheme,” federal prosecutors said on Monday, unsealing a 49-page indictment.

On Wednesday, a grand jury secretly indicted Nordlicht and a half dozen of his colleagues, including co-chief investment officer David Levy, managing partner Uri Landesman, its signature fund’s chief financial officer Joseph SanFilippo, investor relations member Joseph Mann, and co-portfolio manager Daniel Small.

Jeffrey Shulse, the former CEO of Black Elk Energy Offshore Operations, is also a defendant.

U.S. Attorney Robert Capers said the men used the $1.7-billion hedge fund to run “one of the largest and most brazen investment frauds perpetrated on the investing public.”

Platinum allegedly earned more than $100 million from the scheme.

“Platinum Partners purported to be a standard bearer in the hedge fund industry, reporting annual average returns of more than 17 percent since inception in 2003,” Capers said in a statement. “In reality, their returns were the result of the overvaluation of their largest assets, which 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.”

Platinum placed the vast majority of its assets in two funds: the Platinum Partners Value Arbitrage Fund (PPVA) and the Platinum Partners Credit Opportunities Master Fund (PPCO).

Between November 2012 and December 2016, Nordlicht and others overvalued PPVA’s illiquid and privately held assets to “boost performance numbers, attract new investors, retain existing investors and extract high management and incentive fees,” prosecutors say.

Prosecutors quoted the executives speaking about the funds’ problems as far back as four years ago.

“If we don’t exceed [the $27 million in redemptions] in [subscriptions] . . . we are probably going to have to put black elk in side pocket,” Nordlicht allegedly told Landesmann in a Nov. 6, 2012 email, referring to the oil company. “It’s just very daunting. It seems like we make some progress and then [redemptions] are relentless almost.”

Two years later, Nordlicht’s private assessment to Small was even more stark.

“This is also the week I need to figure out how to restructure and raise money to pay back 110 million of [preferred equity] which if unsuccessful, [would] be the end of the fund,” an email from March 17, 2014 states, according to prosecutors. “This ‘liquidity’ crunch was caused by our mismanagement – yours David and I – of the black elk position so I will multitask and also address your concerns but forgive me if I am a little distracted.”

Prosecutors highlighted Landesman's far sunnier forecast for an investor on Feb. 7 of this year.

“Fund is sound, I believe, new structure ideal,” the email said. “Mark [Nordlicht] is really energized. Hope to be beyond liquidity concerns forever by end of May, we welcome your further investment.”

Each of the men faces a maximum 20 years imprisonment if convicted in their eight-count indictment.

Nordlicht’s attorney did not immediately respond to a request for comment, but one of his co-defendant’s lawyers vowed to fight the charges.

“We look forward to responding to these charges in court and clearing David Levy's good name,” attorney Michael Sommer said in an email.

Sommer is with Wilson Sonsini Goodrich & Rosati in New York City.

Categories / Criminal, Law, Securities

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