Please, dear reader read carefully. The irony cannot be lost on you that every penny that disappeared from the various Platinum entities, wound up in the wives’ funds, accounts, trusts, real estate holdings, jewelry foundations etc.
Mark Nordlicht has all but convinced the courts that he is penniless. That’s probably true. But Dahlia Kalter Nordlicht? She has way more than 2 nickles to rub together.
Have you forgotten about the Herbert Stettin case from 2011? Have you not considered the defendants in that case and the connections among them?
See for yourselves:
The Fraudulent Investment Scheme
Platinum was a hedge fund founded in 2003 and based in New York, New York. Since September 2011, Platinum was registered with the SEC as an investment adviser. Platinum managed several hedge funds, but the vast majority of its assets were invested through Platinum Partners Value Arbitrage Fund, L.P. (PPVA) and Platinum Partners Credit Opportunities Master Fund, L.P. (PPCO). Platinum charged its investors a two percent management fee and a 20 percent incentive or performance fees. In March 2016, Platinum reported to regulators, including the SEC, that it had $1.7 billion in assets under management (AUM), including approximately $1.1 billion in gross asset value in PPVA and more than $590 million in PPCO.
Between November 2012 and December 2016, Nordlicht, Levy, Landesman, SanFilippo and Mann, together with others, participated in a scheme to defraud investors and prospective investors in Platinum through lies and omissions relating to, among other things: (i) the performance of some of PPVA’s highly illiquid and privately-held assets; (ii) PPVA’s accessibility to cash or assets that could easily be converted into cash; (iii) the purpose of loans raised through investors and the use of those loan proceeds; and (iv) PPVA’s preferential redemption, or investor payment, process. Specifically, Platinum fraudulently overvalued some of PPVA’s highly illiquid and privately-held assets in order to, among other things, boost performance numbers, attract new investors, retain existing investors and extract high management and incentive fees. From 2012 through 2016, Platinum extracted more than $100 million in fees based, in large part, on their overvalued assets. Platinum’s overvaluation of some of their assets precipitated a severe cash crunch, which Platinum initially attempted to mitigate through high-interest loans between its various hedge funds and related entities. When the inter-fund loans proved insufficient to resolve PPVA’s cash crunch, Platinum began selectively paying some investors ahead of others, contrary to the terms of its governing documents.
As early as 2012, Nordlicht and his co-conspirators knew that PPVA was in trouble, but concealed that reality from investors and prospective investors. For example, on November 6, 2012, upon learning that PPVA’s investors had sought $27 million in redemptions, Nordlicht exchanged emails with Landesman that stated, in part: “If we don’t exceed [the $27 million in redemptions] in [subscriptions] . . . we are probably going to have to put black elk in side pocket . . . It’s just very daunting. It seems like we make some progress and then [redemptions] are relentless almost. It’s tough to get ahead in [subscriptions] if u have to replace 150-200 a year.”
By 2014, the defendants were relying almost exclusively on new investments and inter-fund loans to pay redemptions to PPVA’s investors. For example, on April 29, 2014, when faced with requests from investors who had not yet received their redemptions, Nordlicht sent an email to SanFilippo that stated, in part: “Start paying down [redemptions] as [you] can. Between [a new investor] and [a one-off loan] (additional 10 million), [should] have decent short term infusion. Hopefully some [M]ay 1 [new investments] show up as well. Have a few more outflows to discuss but this is obviously the priority.” Nordlicht and his co-defendants concealed PPVA’s cash crunch and selective redemption payments from investors. For example, in an investor call on January 14, 2015, Nordlicht stated, in part: “If we look historically, we’ve been very very fortunate . . . we’re running about a billion four between all our different entities . . . I think we’ve returned about double that in cash to investors, so that is really an indication of . . . being very very liquid and nimble . . . in terms of 2015 for PPVA, we are targeting much higher returns than normal.”
Nordlicht’s and Landesman’s knowledge of Platinum’s dire situation was perhaps best illustrated by an email exchange on December 13, 2015. When Nordlicht forwarded an email to Landesman where he had informed a co-conspirator that his wife was convincing him to get on a flight to Israel if he was unable to get a loan from his partners to save the fund, Landesman responded: “You should get on the flight if there is no bridge [loan], probably even if there is . . . We need to go through the mehalech of how we are going to share this with clients and employees, going to be very rough, big shame . . . it was nice seeing you, hopefully the girls will reacclimate [sic] quickly.” Notwithstanding the above email exchange, on February 7, 2016, Landesman sent an email to an investor that stated, in part: “Fund is sound, I believe, new structure ideal. Mark [Nordlicht] is really energized. Hope to be beyond liquidity concerns forever by end of May, we welcome your further investment.”
PPVA was heavily invested in oil and gas companies that performed significantly below expectations and the valuations that Platinum attributed to them. These valuations were further undermined by the plummeting price of oil, which dropped from approximately $105 per barrel in December 2013, to approximately $60 per barrel in December 2014, to approximately $36 per barrel in December 2015.
Despite the severe problems that PPVA was facing beginning in at least 2012, Platinum reported that PPVA’s AUM increased from approximately $727 million at the end of 2012, to approximately $757 million at the end of 2013, to approximately $770 million at the end of 2014, to approximately $910 million at the end of 2015. Platinum collected two percent management fees off these amounts and 20 percent incentive fees off the profits.
The Fraudulent Black Elk Bond Scheme
From approximately November 2011 to December 2016, Nordlicht, Levy, Small and Shulse, together with their co-conspirators, orchestrated a fraudulent scheme to defraud third-party holders of Black Elk’s publicly-traded bonds (the bondholders) by diverting the proceeds from the sale of the vast majority of Black Elk’s most lucrative assets to Platinum even though the bondholders had priority over Platinum’s equity interests. As early as November 2011, Nordlicht, Levy and Small were plotting to deceive the bondholders. For example, when Nordlicht learned about the relevant covenants associated with the bonds, he sent an email to Levy, Small and another that stated: “Seem like there are bond[s] to be had out there and an additional 60 million is 24 down . . . We [would] have to figure it out . . . I’m sure we can get them in friendly hands if the covenants are going to be an obstacle.”
By late 2013, faced with the fact that Black Elk was effectively insolvent but knowing that Black Elk still possessed certain valuable assets, the defendants pursued opportunities to sell Black Elk’s assets while simultaneously pursuing a fraudulent strategy to divert the proceeds from any such asset sale to the preferred equity stockholders, which were controlled by Platinum, instead of the bondholders. To execute this scheme, in early 2014, the defendants caused Platinum to purchase Black Elk bonds on the open market to gain control of a majority of the $150 million of outstanding bonds. Platinum purchased and then transferred the bonds through a number of related entities in an effort to conceal Platinum’s ownership and control of the bonds.
By approximately April 2014, Platinum owned and controlled approximately $98 million of the $150 million of outstanding bonds. Between March 2014 and April 2014, Platinum and its related parties also purchased the vast majority of the outstanding preferred equity that was owned by third parties to obtain nearly 100 percent ownership of the preferred equity. By approximately May 2014, when alternative approaches failed, the defendants, together with others, determined that the only path to getting the preferred equity paid ahead of the bondholders was through a cash tender offer and consent solicitation process. On July 2, 2014, Small forwarded an email from a Platinum trader to Nordlicht and Levy that set forth the following summary of the $98,631,000 of the bonds controlled by Platinum: (i) PPCO: $32,917,000; (ii) PPVA: $18,321,000; (iii) PPLO: $17,046,000; (iv) BAM [a related entity]: $13,360,000; and (v) BBIL [a related entity]: $16,987,000. Nevertheless, in response to a query from an attorney, on July 9, 2014, Small sent an email that stated, in part: “$18,321,000 bonds are controlled by PPVA and should be disclosed and excluded from the calculation. I believe this implies that $65,840,000 are required to obtain a majority consent.”
On July 16, 2014, Black Elk announced that it had commenced a public offer for the bonds (the Consent Solicitation). The Consent Solicitation and accompanying press release provided, among other things, that: (i) Black Elk had commenced a cash tender offer to purchase the outstanding bonds at par value; (ii) Black Elk was soliciting bondholders’ consents to modify certain of the restrictive covenants governing the bonds; (iii) the bondholders that tendered their bonds would be considered to have validly delivered their consent to the proposed amendments; (iv) the bondholders could also consent to the proposed amendments without tendering their bonds; (v) the Consent Solicitation was being made in connection with the sale of assets and the net proceeds of the sale would be used by Black Elk to purchase the tendered bonds; and (vi) the offer would expire at 5:00 p.m. New York time on August 13, 2014.
Notably, the Consent Solicitation prohibited “any person directly or indirectly controlling or controlled by or under direct or indirect common control with [Black Elk]” from voting in the Consent Solicitation process. Thus, the approximately $98 million of bonds controlled by Platinum should have been excluded from the voting process. Nonetheless, the defendants caused Black Elk to disclose in the Consent Solicitation that: “[PPVA] and its affiliates, which own approximately 85% of our outstanding voting membership interests, own[ed] approximately $18,321,000 principal amount of the outstanding Notes. Otherwise, neither we, nor any person directly or indirectly controlled by or under direct or indirect common control with us, nor, to our knowledge, any person directly or indirectly controlling us, held any Notes.”
The defendants then caused Platinum’s related parties to consent to the proposed amendments but not tender their bonds. As of the offer’s expiration on August 13, 2014, bondholders that held $11,333,000 of the BE Bonds validly had tendered and were paid. To the surprise of the remaining bondholders, who were unaware of Platinum’s control of $98,631,000 or approximately 65 percent of the BE Bonds, the trustee revealed that the holders of $110,565,000 or approximately 73.71 percent of the bonds had validly consented to the Consent Solicitation, thereby allowing the preferred equity to get paid from the proceeds of Black Elk’s sale of assets.
On or about August 11, 2015, Black Elk’s creditors filed a petition to place the company into an involuntary Chapter 7 bankruptcy, which was converted on or about September 1, 2015 to a voluntary Chapter 11 bankruptcy. As of December 2016, a number of bondholders who did not tender their BE Bonds have yet to receive the principal amount of their holdings.
The criminal case has been assigned to Chief Judge Dora L. Irizarry of the United States District Court. If convicted, each of the defendants faces a maximum sentence of 20 years’ imprisonment.
The government’s case is being prosecuted by the Office’s Business and Securities Fraud Section. Assistant United States Attorneys Winston Paes, Alicyn Cooley, Lauren Elbert and Sarah Evans are in charge of the prosecution, with assistance provided by Assistant United States Attorney Brian Morris of the Office’s Civil Division
The news of the arrests was widely reported:
CNBC (Press Conference Video): US charges hedge fund founder, others with $1 billion fraud
The New York Times: Platinum Hedge Fund Executives Charged With $1 Billion Fraud
The Wall Street Journal: Platinum Partners’ Executives Charged With $1 Billion Securities Fraud
- MARK NORDLICHT Age: 48 Residence: New Rochelle, New York
- DAVID LEVY Age: 31 Residence: New York, New York
- URI LANDESMAN Age: 55 Residence: New Rochelle, New York
- JOSEPH SANFILIPPO Age: 38 Residence: Freehold, New Jersey
- JOSEPH MANN Age: 24 Residence: Brooklyn, New York
- DANIEL SMALL Age: 47 Residence: New York, New York
- JEFFREY SHULSE Age: 44 Residence: Houston, Texas