Top executives of New York-based hedge fund manager Platinum Partners were arrested on Monday and charged with running a US$1 billion fraud that federal prosecutors said became “like a Ponzi scheme” as its largest investments lost much of their value.
Led by Mark Nordlicht, Platinum was known for years for producing exceptionally high returns — about 17 percent annually in its largest fund — by taking an unusually aggressive approach to investing and fund management, as detailed by a Reuters special report in April.
Nordlicht, Platinum’s founding partner and chief investment officer, was arrested at his home in New Rochelle, New York.
Photo: Bloomberg
Federal prosecutors accused him and six others of participating in a pair of schemes to defraud investors.
“The charges ... highlight the brazenness and the breadth of the defendants’ lies and deceit,” US Attorney Robert Capers told reporters.
Capers added that the case was one of the largest and “most brazen” investment frauds ever and Platinum was ultimately exposed to have “no more value than a tarnished piece of cheap metal.”
The US Securities and Exchange Commission announced parallel charges on Monday against the same executives and two Platinum entities for similar civil fraud charges.
A 48-page criminal indictment said that since 2012, Nordlicht and four other defendants defrauded investors by overvaluing illiquid assets held by its flagship Platinum Partners Value Arbitrage funds, mostly troubled energy-related investments.
This caused a “severe liquidity crisis” that Platinum at first tried to remedy through high-interest loans between its funds before selectively paying some investors ahead of others, the indictment said.
“So to some extent, there is a ‘Ponzi-esque’ aspect to this scheme,” Capers said.
Founded in 2003, Platinum until this year had more than US$1.7 billion under management, with more than 600 investors, authorities said.
Some of those investors came from the same New York Jewish community as Nordlicht and other Platinum executives. They have included a charitable trust set up by day-trading pioneer Aaron Elbogen; the Century 21 Associates Foundation, led by department store executive Raymond Gindi and the SFF Foundation, a non-profit controlled by the Schron family, known for its real-estate investments.
Avi Schron declined to comment; Gindi and Elbogen did not immediately respond to requests for comment.
The indictment describes how angry investors sought to take their money out late last year and early this year as Platinum hinted to clients that some assets were in trouble.
It also cites e-mails between Nordlicht and another unnamed executive in which the men discussed fleeing to Israel as pressure on the firm mounted.
Prosecutors said Platinum’s co-chief investment officer David Levy, and former president of the firm’s signature fund Uri Landesman, also participated in the scheme, which prosecutors said allowed Platinum to extract more than US$100 million in fees based on inflated asset values.
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