Several employees of troubled New York hedge fund Platinum Partners were arrested Monday on charges of participating in a $1 billion fraud.
These are the seven employees whom authorities charged, according to the indictment. (A copy of the 49-page indictment is published below.)
- Mark Nordlicht, Platinum’s chief investment officer. David Levy, a senior executive. Uri Landesman, who the government says was “heavily involved in marketing Platinum’s funds” and investors’ contact. Joseph Sanfilippo, who was the chief financial officer for one of Platinum’s funds and a member of its valuation team. Joseph Mann, who marketed Platinum from 2013 to 2016. Daniel Small, who was a co-portfolio manager for one of Platinum’s strategies, Black Elk. Jeffrey Shulse, who was Black Elk’s chief financial officer, and later its CEO.
Here are some of the key allegations made in the indictment:
- “Platinum reported that PPVA had returned profits of more than eight percent in 2015 and more than seven percent for the period from January 2016 through April 2016.”PPVA refers to Platinum’s value arbitrage fund, which the indictment says was invested “primarily in highly illiquid Level 3 companies despite representations to investors…that PPVA was a relatively liquid fund.” “In or about and between 2011 and 2016, the defendants Mark Nordlicht and David Levy, together with others, engaged in two separate schemes: (i) a scheme to defraud investors and prospective investors in funds managed by Platinum; and (ii) a scheme to defraud third-party holders of the BE Bonds.” BE Bonds are bonds issued by Black Elk, a energy company that was controlled by Platinum from 2010 to 2015. “In or about and between November 2012 and December 2016, the defendants Mark Nordlicht, David Levy, Uri Landesman, Joseph Sanfilippo and Joseph Mann, together with others, engaged in a scheme to defraud investors and prospective investors in Platinum through material representations and omissions relating to, among other things: (i) the performance of some of PPVA’s Level 3 assets; (ii) PPVA’s liquidity; (iii) the purpose of PPNE and the use of PPNE’s proceeds; (iv) PPVA’s preferential redemption process; and (v) related party transactions involving PPVA and PPCO.” “Specifically, Platinum fraudulently overvalued some of PPVA’s Level 3 assets in order to, among other things, boost performance numbers, attract new investors, retain exiting investors and extract high management and incentive fees.” “Platinum’s overvaluation of some of its Level 3 assets precipitated a severe liquidity crisis, which Platinum initially attempted to mitigate through high-interest loans between its hedge funds… When the…loans proved insufficient to resolve PPVA’s liquidity problems, Platinum began selectively paying some investors ahead of others, contrary to the terms of its governing documents.” Beginning in at least early 2014, Nordlicht, Levy, Landesman, Sanfilippo and Mann “began relying almost exclusively on new investments and inter-fund loans to pay redemptions to PPVA’s investors.” “Based in large part on Platinum’s consistent overvaluation of PPVA’s largest Level 3 assets, the defendants…extracted significant management and incentive fees from PPVA. In fact, from approximately 2012 through 2014, Platinum Management received more than $91 million in management and incentive fees.” The firm charged investors a 2% management fee on assets and a 20% performance fee, according to the indictment, which is a standard fee model for hedge funds. “Platinum never disclosed to investors and prospective investors that it was using new investments to pay redemptions.”
Platinum managed about $1.7 billion as of March 2016, the indictment says.
An external spokesman for Platinum declined to comment. Michael Sommer, Levy’s attorney, said in an email that “we look forward to responding to these charges in court and clearing David Levy’s good name.”
Lawyers for the other defendants could not immediately be reached.
The case is US v. Nordlicht et al, US District Court, Eastern District of New York, No. 16-cr-640.