New York hedge fund founder, 6 others charged in massive fraud scheme

In what could emerge as the largest fraud case since the exposure of Bernard Madoff’s massive Ponzi scheme in 2008, authorities arrested seven top executives of New York-based hedge fund Platinum Partners on Monday and charged them with defrauding investors in excess of $1 billion.

The seven men are accused of overestimating the value of unprofitable oil projects to make the fund’s performance appear lucrative. Investigators believe as many as 600 individuals may have been victimized.

Announcing the indictments, U.S. Attorney for the Eastern District of New York Robert Capers told a news conference:

“In the end, Platinum held no more value than a tarnished piece of cheap metal.  Nordlicht and his cohorts engaged in one of the largest and most brazen investment frauds perpetrated on the investing public, earning Platinum more than $100 million in fees during the charged conspiracy.”

Founded in 2003 by Mark Nordlicht with funds raised by Murray Huberfeld, Platinum Partners’ main funds had never reported yearly losses and rarely recorded negative months.

Throughout 2015, Platinum reported an annual gain of 17 percent, despite two investments, Golden Gate Oil LLC and Black Elk Energy LLC, Platinum became involved with ended in punishment for its management.

Despite Platinum’s claim, Golden Gate Oil and Black Elk Energy sustained 37 percent, or $292 million, of the fund’s value. Golden Gate Oil’s value is nearly worthless and Black Elk Energy is bankrupt.

Unable to re-pay investors demanding returns in late 2015, prosecutors allege the firm’s executives were desperate to raise cash and embarked on a blitz campaign to seek out new investors.

The scheme collapsed in June when Huberfeld was arrested on a separate charge of attempted bribery of the head of the New York City correction officers’ union in a bid to have the organization hand over its pension fund to Platinum.

Prosecutors theorize Huberfeld was frantically attempting raise cash to pay impatient Platinum investors demanding a return on their investment.  Platinum’s offices were later raided by federal authorities.

Along with Nordlicht, charged on Monday were:  David Levy, 41, co-chief investment officer, Uri Landesman, former president of Platinum, Joseph Sanfilippo, chief financial officer, Joseph Mann, marketing employee, Daniel Small, managing director, and Jeffrey Shulse, Black Elk’s chief financial officer.

Nordlicht, Landesman and Levy have been hit with an eight-count indictment alleging conspiracy and securities fraud.

 

[Reuters] [Photo courtesy The Business Times]