Platinum Partners hedge fund employees arrested in $1 Billion fraud scheme

Several employees of troubled New York hedge fund Platinum Partners were  arrested on charges of participating in a $1 billion fraud.

The hedge fund reported strong average returns of 17% from 2003 to 2015, according to a lawsuit filed by the Securities and Exchange Commission.In reality, management firms faced a  liquidity crisis at times referred to in company documents as “Hail Mary time,” along with “relentless” redemption requests from investors seeking their money back, federal prosecutors and the SEC said.

Nordlicht and his alleged co-conspirators knew that one of the company’s chief funds faced financial trouble as early as 2012, the indictment charged. As the situation turned desperate, the suspects allegedly defrauded investors by overvaluing the company’s largest assets, concealing cash-flow problems at Platinum’s signature fund and paying preferential repayments to some customers.

The employees arrested and charged are:

  • 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.

The indictment alleges various forms of fraud including misrepresenting the fund performance and overvaluing funds to boost performance numbers. “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 $1.7 billion as of March 2016.

Jeffrey Newman represents whistleblowers.