Fund ‘run like a Ponzi scheme’
FOR years, a little-known New York hedge fund called Platinum Partners stood out for double-digit investment returns that rivaled some of the biggest names in the industry.
It turned out that those returns were too good to be true, according to federal prosecutors.
Federal agents on Monday arrested Mark Nordlicht, a founder and the chief investment officer of Platinum, and six others on charges related to a $1 billion fraud that led the firm to be operated “like a Ponzi scheme,” prosecutors said. It is one of the largest such fraud cases since Bernard L Madoff’s firm unravelled in 2008.
David Levy, the firm’s co-chief investment officer, was also among those arrested by agents in Texas, Manhattan and New Rochelle, a suburb of New York City. The men were charged with securities fraud and investment adviser fraud, according to an unsealed indictment filed in Federal District Court in Brooklyn. The Securities and Exchange Commission filed a parallel civil case.
Platinum tapped prominent families and foundations within the Orthodox Jewish community in New York to fuel high-stake bets on payday lenders, oil companies and even the terminally ill. But prosecutors said these investments and the firm’s performance were misrepresented by its executives. Ultimately, Platinum had to take in new money to pay longtime investors who wanted their money back, something the firm’s executives called among themselves its “Hail Mary time”.
“As investors sought redemptions, the defendants engaged in numerous improper measures in an attempt to meet redemption requests, including taking out high-interest rate loans, commingling monies among funds, and raising money from new investors through fraudulent misrepresentations,” said Andrew J Ceresney, the director of the SEC’s Division of Enforcement.
Located a few blocks from Central Park, Platinum, founded in 2003, made a splash early on with some of its investments. In one bet, the firm sought to profit from the death of terminally ill patients by investing in variable insurance payouts. As part of the scheme, a rabbi in Los Angeles sought out hospice patients to get their personal details that could be used to buy insurance payouts in their names.
A company that Platinum set up to make the investments was fined by the SEC in January 2015. “We definitely were exploiting a loophole, but it was fully vetted by legal counsel,” Nordlicht said in an interview with Bloomberg later that year.
In other bets, Platinum misled both investors and auditors – sometimes brazenly. In December 2012, for example, executives misrepresented to auditors the value of Black Elk Energy, an oil and gas company controlled by Platinum, valuing it at $283 million, prosecutors said. In fact, there had been an explosion on a Black Elk platform in the Gulf of Mexico the month before that had caused the deaths of three workers, injuries to other employees and an oil spill. Black Elk no longer exists.
Michael Sommer, a lawyer for Levy said he looked forward to “clearing David Levy’s good name”.