The Platinum Swindle – One Cannot Blame Investors When the Execs. Were Side-Pocketing and Cooking Books

Mark Nordlicht, co-founder of Platinum Partners LLP, exits federal court in the Brooklyn, New York in 2017. 

Ex-Hedge Fund COO Says He Helped Hide Company’s Dire Finances


A former executive at the defunct hedge fund Platinum Partners said he helped his colleagues hide the company’s true financial condition from investors as they increasingly sought to pull their money out of the firm before it collapsed.

Naftali Manela, Platinum’s former chief operating officer and one of two ex-executives cooperating with prosecutors, told a federal jury that they masked the firm’s struggle for cash by having one fund lend to another or paying back some investors before others.

“It enabled us to not tell investors the true state of play,” said Manela, who resigned from the company amid the cash crunch in January 2016 and pleaded guilty in December of that year. “There wasn’t enough money to keep things going.”

Manela was on the witness stand on the fifth day of the trial of co-founder Mark Nordlicht, former senior executive David Levy and Joseph SanFilippo, who served as chief financial officer of one of the company’s funds. The three are accused in Brooklyn, New York, of inflating the value of Platinum’s largest holdings and using loans and new investor funds to pay off old investors, while telling regulators the firm had about $1.7 billion in assets under management.

Huge Returns

Platinum reported average annual returns of 17 percent from 2003 to 2015 under Nordlicht’s guidance, earning the envy of the hedge-fund industry. It collapsed in June 2016 after co-founder Murray Huberfeld, a penny-stock financier from Brooklyn, was charged in a separate case involving municipal corruption.

Within a week of the arrest, Nordlicht told investors he was winding down the Platinum Partners Value Arbitrage fund. FBI agents then searched Platinum’s offices. Nordlicht and the other executives were charged later that year.

Defense attorneys have argued that those who put money into Platinum were sophisticated investors who did their research and knew the risks, and that an FBI raid and government leaks to news media led them to pull their money and caused the collapse of the company.

In court on Tuesday, Manela told jurors that by early 2015 a significant number of investors were seeking to withdraw money, but many investments were in private equity and weren’t easily liquidated. As a result, Manela said, Nordlicht would pick and choose which investors to pay, while shifting money between the firm’s funds to keep them afloat.

‘Side Pocket’

“I helped move money between companies to generate some cash so as not to tell investors we were out of cash,” Manela said.

Manela said that by the summer of 2015 he had become frustrated and wanted to tell investors Platinum had run out of cash.

“It seemed to me the investors who were making the most noise — who were complaining — were getting paid,” Manela said.

To continue reading the Bloomburg article, click here.

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