LostMessiah, June 8, 2016
WHERE DOES BLACK ELK FIT IN? – PART I
Black Elk’s place in the Platinum story is somewhat complicated. As we understand it, Black Elk was started to provide capital to repay investors who were owed money by Platinum. At the time our sources tell us that Platinum had lost millions and the investor pool wanted to pull assets. We are told and articles seem to indicate that the Black Elk scheme kept Platinum above water while Platinum [Nordlicht] looked for other ways to make money. All indications are that Black Elk was the distraction that kept Nordlicht from being actively involved in Platinum Partners, hence Huberfeld.
We also believe that Black Elk was the energy company referred to in many of the articles regarding significant losses in investments but there were a number of energy related companies in which Platinum had its hands or its investors’ money.
We put the two articles together in this post as a “speculative investment” in our readership capital. We could use assistance in filling in the gaps and would be grateful for any information left on our tips page or sent to us at our gmail address (firstname.lastname@example.org).
We look forward to assistance from our readers and will fill in the blanks as we can. In the meantime, read on.
Platinum Partners’ Murray Huberfeld charged with fraud – Business Insider
A controversial hedge fund manager has been charged with fraud
Platinum Partners’ Murray Huberfeld charged with fraud –
The cooperating witness, whose description matches that of Rechnitz but whom the criminal complaint refers to only as “CW-1,” first met Seabrook through a police officer in 2013. He also knew Huberfeld, who had an office at Platinum, the complaint said.
According to CW-1, Huberfeld was secretly running Platinum, but his role was not publicly acknowledged because of “a prior lawsuit or investigation relating to a fund Huberfeld previously ran,” the complaint said. Platinum founder Mark Nordlicht could not be reached for comment on Wednesday.
Huberfeld was ordered to disgorge profits and fined for violating securities laws at his Broad Capital fund. He later provided Platinum with start-up money and ran Nordlicht’s credit-focused hedge funds until Platinum took them over in 2011.
In 2013, CW-1, Seabrook, a police officer and others took two trips to the Dominican Republic. There, Seabrook complained that he worked hard to invest the union’s money but made none for himself, according to the criminal complaint.
It was time “Norman Seabrook got paid,” he told CW-1, according to the complaint.
Authorities said CW-1 helped orchestrate a fraud scheme in which Huberfeld promised to return half of Platinum’s 20 percent commission to Seabrook as a kickback.
CW-1 agreed to use his own money to bribe Seabrook and at Huberfeld’s suggestion created a fake invoice for New York Knicks tickets he supposedly sold to Platinum in order to get reimbursed, the complaint said.
He then brought $60,000 in cash to Seabrook on Dec. 11, 2014, in a new $820 Salvatore Ferragamo bag he had purchased just for the handoff, according to court documents.
Platinum Partners hedge funds are hot — maybe too hot for big money
The top-performing hedge fund manager that’s too hot for big money to handle
Platinum Partners hedge funds are hot — maybe too hot for big money
BLACK ELK BLOW-UP
Platinum’s involvement with Black Elk shows just how complicated the firm’s investments can get – and how Nordlicht manages to wring profits from them.
Houston-based Black Elk was founded in 2007 to buy no-longer-productive offshore wells at discounted prices and then use new technology to squeeze more oil and natural gas from them.
Platinum began investing in Black Elk in 2009, first lending to it. Platinum later acquired preferred shares that eventually gave it majority control – and paid annual dividends of 20 percent or more, according to securities filings and an external valuation report reviewed by Reuters.
Then, in 2012, an explosion on a Black Elk rig off the Louisiana coast killed three workers, seriously injured three others and spilled oil into the Gulf of Mexico. A 2013 report from the U.S. Department of the Interior’s Bureau of Safety and Environmental Enforcement found that the “safety culture” aboard the rig was “poor at best.” Even before the explosion, the company received hundreds of bureau citations for safety violations.
The Department of Justice subsequently announced criminal charges against Black Elk and related contractors. Black Elk pleaded not guilty to involuntary manslaughter and other charges related to failing to follow proper safety practices. The case is pending.
That and other legal challenges after the explosion, combined with the collapse of energy prices, were among the issues that forced Black Elk into bankruptcy proceedings in August 2015.
Black Elk’s creditors were left to wonder how Platinum was paid proceeds from the asset sale before them.
By then, however, the company had sold its main assets to Houston-based Renaissance Offshore LLC for $149 million. Most of the proceeds from that August 2014 sale went to a Platinum subsidiary. Black Elk then sold much of its remaining assets to Northstar Offshore Group LLC, a Houston company in which Platinum is a substantial investor.
Together, the sales helped Platinum and its investors eke out a modest profit on their Black Elk bet, according to the person familiar with Platinum’s history. The position was the largest holding in the Value Arbitrage fund on March 31, 2014, worth as much as $186 million, according to the valuation report.
Black Elk’s creditors were left to wonder how Platinum was paid proceeds from the asset sale before them. Secured bondholders, for example, would normally have had first priority. Documents and interviews with people familiar with the transaction suggest an answer.
Just weeks before the sale to Renaissance closed, Black Elk asked holders of $150 million of its high-yield bonds to approve a measure that let Platinum receive proceeds of the transaction ahead of bondholders and other creditors.
Surprisingly, nearly 75 percent of bondholders consented, according to a Black Elk earnings announcement in August 2014. Reuters could not determine the identities of all bondholders or how they voted.
“No bondholder in their right mind would ever vote to have their covenants stripped like that,” said one note owner. Lawyers and representatives for other secured bondholders did not respond to requests for comment or declined to comment.
Internal Black Elk emails and legal documents related to its bonds show that various Nordlicht-controlled hedge funds owned about 70 percent of the bonds before the vote and at least 47 percent after. The person familiar with Platinum’s history confirmed that the firm voted its own bonds to approve the measure.
In addition, another large block of bonds was held by affiliates of reinsurer Beechwood Bermuda International Ltd, according to a Black Elk bond modification document from November 2014. Beechwood had hired former Platinum employee David Levy in November 2013 as chief investment officer of structured products. Levy returned to Platinum as co-CIO several months after the bondholder vote.
Beechwood spokesman David Goldin confirmed that Levy was responsible for Beechwood’s purchase of Black Elk bonds and for voting them in Platinum’s favor, along with the approval of other covenant changes. He said that those bonds were sold the month after Levy left.
Platinum believes that the measure would have been approved even if the firm’s votes had not been counted by the bond trustee, Bank of New York Mellon, according to the person familiar with Platinum’s position. The Renaissance sale proceeds, the person added, were used to pay back investors in a private equity fund Platinum created and from which it took no fees.
A lawyer for Black Elk declined to comment on Platinum, citing the bankruptcy proceedings.
Black Elk founder and CEO John Hoffman left the company shortly after the sale to Renaissance. Black Elk’s next CEO, Jeff Shulse, left after the Northstar deal. According to a filing by Black Elk creditors as part of the bankruptcy proceedings, both men left in protest over cash from the sales being used to pay Platinum. The filing alleged “a series of questionable transactions” that allowed $96 million from the Renaissance sale to go to Nordlicht’s firm “to the detriment of the company’s creditors and estate.”
Hoffman and Shulse declined to comment.
After the sale, some creditors cried foul. For example, in a lawsuit filed in Louisiana state district court in April 2015 against Black Elk, Nordlicht and Platinum entities, contractor Shamrock Management accused Platinum of engaging in an “unethical scheme” to suck assets out of Black Elk and pay itself while stiffing creditors. The lawsuit seeks nearly $1 million for unpaid work and damages.
That lawsuit and more than a dozen others like it remain unresolved in the bankruptcy process, part of 261 claims totaling $1.2 billion. The person familiar with Platinum’s position called the lawsuits a frivolous attempt to bilk Platinum of cash.