A Platinum Vindication – Platinum Partners and Sufficient Evidence of Fraud

As the readers of this blog may remember, the Platinum Partners fraud was widely covered in and around 2016 and 2017. The coverage included years of research on the part of a small group of very dedicated people who collaboratively amassed a treasure trove of information regarding the Platinum Partners hedge fund, its activities, the defrauding of millions of dollars in investor money, bribery, securities fraud and the list goes on.

We attended hearings on the frauds related to Black Elk Energy in 2019 and, by all estimation and analyses, we had the partners dead-to-rights on, at the very least, the securities fraud. And then, in what we believed to be a shocking turn of events, Judge Cogan, an altogether brilliant member of the legal community, overturned a jury verdict and acquitted one of the partners and granted the other a new trial. Overturning a jury verdict is unusual. Acquitting a convicted man made our heads turn.

The Black Elk Energy deal, while complicated and nuanced, represented a clever, if not unimaginably creative manipulation of the rights of the unsecured bondholders against the secured bondholders, allowing the Platinum Partners (unsecured bondholders) to divest Black Elk of Millions and Millions of Dollars in valuable oil assets, thereby leaving the secured investors (those same voting shareholders) with nothing. You see, once the secured property is filtered out of any company, the secured holders of debt and financial obligations are left with nothing to secure. This can, if properly directed, reduce the secured bondholders to a position below the unsecured bondholders who, in the ordinary course, would have been paid out first. However, such a vote would have required the Platinum Partners responsible for that vote to have sat down and affirmatively orchestrated such a corporate action. This could not have lacked criminal intent, particularly when David Levy (who was acquitted on those grounds) was and continues to be, one of the largest beneficiaries of the Black Elk deal.

Taking a step back in time, the takeover of control of Black Elk, which began in 2007 when Platinum began investing in the Black Elk Energy company, was a corporate move that legends are made of, a slight of hand and a measure of serendipity. The slow bleed of that company of its assets and value, by the very partners who were supposed to be acting in the best interest of the company did not go unnoticed, at least by us. It was carefully orchestrated and it had a measure of well-honed finesse.

In simple terms convincing secured shareholders to vote on a measure which was framed to them as a vote in the best interest of the company, and ultimately paved the way for the Platinum Partners to drain assets, followed a pattern and practice of corporate behavior by Platinum’s Partners, at least for anyone keeping tabs of their activities.

And yet, at the end of it all Judge Cogan ruled that David Levy lacked criminal intent and Mark Nordlicht was entitled to a new trial. Sadly, we were left bereft by the miscarriage of justice. What occurred in the years leading up to that trial was more than criminally intentional, it was very dark. What has transpired since, is astounding.

The Partners have not starved, as one would think when a company goes from having $1.7 Billions of Assets under Management to nothing (at least nothing being reported). At the end of the day, the greatest beneficiaries of that vote, were the Platinum Partners, and despite contentions to the contrary, these men got very rich off their crimes.

And while Mark Nordlicht later filed for bankruptcy protection (in and around late 2019), anyone who looks hard enough will likely find that he siphoned off his personal assets to family members and offshore accounts and is really, not impoverished. Nor, might we add, is he entitled to bankruptcy protections.

On Thursday, November 5, 2021, a three panel U.S. Appeals Court, after 9 weeks of testimony, unanimously restored the convictions of Mark Nordlicht and David Levy. In a 102-page decision, they determined that the evidence supported the conviction of Mark Nordlicht and did not support a finding of David Levy’s lacking “criminal intent.”

A little vindication goes a long way. Murray Huberfeld’s dramatically reduced sentence remains a slap in the face for his victims in the Platinum Partners fraud. Hopefully David Levy and Mark Nordlicht and their high-priced legal team will not succeed in convincing a judge that they deserve a reduced sentence. They unequivocally do not.

See below for additional reading and a copy of he decision.

U.S. appeals court restores Platinum Partners executives’ fraud convictions

NEW YORK, Nov 5 (Reuters) – A U.S. appeals court on Friday restored the fraud convictions of two former top executives at the now-defunct Platinum Partners hedge fund, saying a trial judge erred in acquitting one defendant and granting the other a new trial.

In a 102-page decision, the 2nd U.S. Circuit Court of Appeals in Manhattan said sufficient evidence supported the July 2019 jury convictions of Platinum co-founder Mark Nordlicht and co-chief investment officer David Levy.

The appeals court returned the case to U.S. District Judge Brian Cogan in Brooklyn for sentencing. Platinum was based in Manhattan and once had about $1.7 billion of assets.

Appeals Court Reinstates Convictions of Platinum Partners Executives

Hedge fund founder Mark Nordlicht and co-chief investment officer David Levy were convicted in 2019 of securities fraud and other charges

Mark Nordlicht, the founder of defunct hedge fund Platinum Partners, leaving federal court in the Brooklyn borough of New York in 2019.

The U.S. attorney’s office for the Eastern District of New York, which prosecuted the case, appealed that decision.

In Friday’s ruling, U.S. Circuit Judge Robert Sack wrote that there had been sufficient evidence for a rational jury to convict the defendants, and neither an acquittal or new trial was warranted.

“It is accordingly only in exceptional circumstances, where there is ‘a real concern that an innocent person may have been convicted,’ that a court ‘may intrude upon the jury function of credibility assessment’ and grant a [motion for a new trial],” he wrote, quoting from another case.

Lawyers for Messrs. Nordlicht and Levy didn’t respond to requests for comment.  A spokesman for the U.S. attorney’s office declined to comment.

The Decision decided on November 5, 2021 by the 3 Member Appellate Panel

The Shocking Departure of Judge in Platinum Partners Trial, A Defense Ace-in-the-Hole

Intrigue surrounds NYC judge’s withdrawal from case against hedge fund founder who fleeced correction officers’ union

A Manhattan federal judge has abruptly withdrawn from a case involving a crooked hedge fund founder who screwed the correction officers’ union out of $20 million — and sources say it’s due to the judge’s close relationship with an executive who testified about the fund swindling investors.

Judge Alvin Hellerstein, 86, transferred Murray Huberfeld’s case to another court Tuesday without explanation. The move came only weeks before Hellerstein was to re-sentence Huberfeld for his role in a bribery scheme involving former jails union boss Norman Seabrook and notorious Mayor de Blasio donor Jona Rechnitz.

Sources say that behind the scenes, defense attorneys argued Hellerstein should not be on the case because he is close with Andrew Kaplan, a former executive at Huberfeld’s hedge fund, Platinum Partners. Huberfeld recently hired a new attorney, Andrew Levander, records show.

“One of the defendants in the Platinum case … is Andrew Kaplan. I have known Andrew Kaplan since he was born. He and one of my daughters grew up together, went to school together, were friends together. His sister and my eldest daughter remain close friends. His father was a good friend of mine but passed away about five, six years ago, and his mother remains a very good friend of mine, so there is that relationship,” Hellerstein said at a 2018 hearing. “I can’t see that whatever happened, whatever conduct occurred at Platinum affects the issues of this case, which is an honest services issue.”

Online records show Kaplan and Hellerstein’s names on newsletters for The Jewish Center synagogue on the Upper West Side, as well as other charities.

The revelation came after Huberfeld pleaded guilty but had not been sentenced for his role in a $60,000 bribe to Seabrook in December 2014 in exchange for a $20 million investment of union money in Platinum Partners. The union lost its money when the hedge fund went bankrupt. The Correction Officers’ Benevolent Association is still fighting in court to recover the loss. Seabrook asked last week to serve his 58-month sentence in home confinement due to the coronavirus pandemic.

Continue reading in the New York Daily News, click here.

Mr. Seabrook, Will It Ever Be More Clear Who Has Pull in New York? A Losing Appeal

Former jails union boss Norman Seabrook loses appeal in bribery case

Disgraced jails union boss Norman Seabrook is going to jail.

The former leader of the Correction Officers’ Benevolent Association lost an appeal Tuesday of his conviction for accepting a $60,000 bribe in exchange for a $20 million investment of members’ money in a doomed hedge fund.

Seabrook had been out on bail while he fought the case. The decision means it is highly likely he will have to begin serving his sentence of four years and 10 months.

His appeal had hinged on his belief at the time he made the investment that it would get good returns for correction officers. He said details of the loss suffered as a result of the hedge fund, Platinum Partners, going bankrupt prejudiced his right to a fair trial.

The 2nd Circuit Court of Appeals rejected those arguments. Seabrook, the three-judge panel noted, had suppressed warnings from a union lawyer that the investment was risky.

To continue reading, click here.

Murray Huberfeld, Another Questionable Platinum Ruling and An Appellate Court that is “Not Confident”?

Appellate Ruling_Page_01Appellate Ruling_Page_02Appellate Ruling_Page_03Appellate Ruling_Page_04

Dear Readers:

The above pages are from the ruling of the Appellate Court in the Murray Huberfeld/Norman Seabrook Platinum Saga. In our opinion it is nothing short of a travesty of justice.

The victims were indeed the retirees who invested pension funds under Norman Seabrook’s guidance and control. The retirees are the very people who stand to gain equitably by compelling Murray Huberfeld to repay some of the losses they incurred on a failed investment from which he stood to gain. Those losses were realized because of the actions of Huberfeld.

And, when the lower court Judge stated that the sentence would have been the same regardless of which guidelines were used, the Appellate Judges should have accepted the lower court Judge’s credibility, integrity and the process he used. It is somewhat disheartening that they did not.  

Moreover, the ruling raises questions about the integrity of the process moving forward. The Appellate Court has basically undermined the credibility of the lower court Judge with the following statement, which we find unsettling at best:

Appeal from United States District Court for the Southern District of New York (Alvin K. Hellerstein, J.), convicting Murray Huberfeld, after a guilty plea, of conspiracy to commit wire fraud, in violation of 18 U.S.C. § 371. We hold that the district court erred at sentencing by applying the commercial bribery sentencing guideline based on an uncharged bribery scheme that the government dropped in exchange for Huberfeld pleading guilty to the wire fraud. Vacatur is warranted because we cannot be confident, despite the district court’s statement to the contrary, that it would have imposed the same sentence had it instead used the correct guideline.

We sincerely hope that the lower court will use another process and come to the same conclusions, the same sentence or even one that is longer, with greater restitution to be paid. The sentencing guidelines allowed the sentence imposed. It should remain. These were not victimless crimes. 

 

The Magic of Platinum Partners and the Wand of the Magicians Involved – and the Great Tragedy to Jews Everywhere

Great liars are also great magicians.

Adolf Hitler

[Opinion 6.24.19]

Platinum Partners’ Feats of Magic and the Potential for a Great Escape –

The Existential Threat to All of Judaism

The anti-Semitism of Eastern Europe in the mid-1900’s was perpetuated by fear. The prominent Jewish families of Eastern Europe were financiers, bankers, jewelers, clothiers and well-known figures in art and antiquities collection. In whatever form of religious observance our family members took, they were feared because of their successes not because of their improprieties. Hitler’s hold on his own supporters was dominated in large part by a culture of fear shared by Bavaria and surrounding German areas, of the possibility of losing their German Arian identity to Jews, who did not inspire trust, not because they were untrustworthy but because they were gloriously successful at everything they did. Our family members were accomplished.  There were very few who exchanged education for Talmud even in the most religious families of the time. Rather for many families, mastery of life encompassed an aptitude at religious and non-religious subjects and a strong mentality of self-sufficiency. And, the Jewish identity of perseverance and tenaciousness inspired unfounded mistrust, xenophobia and anti-Semitism. As such, Hitler gained power and Jews were slaughtered.

Fast-forward fifty, sixty, seventy years and the world is seeing an increase in anti-Semitism. Unlike in the past, however, it is not a blind mistrust, it is one based upon what feels almost like a culture of fraud and deceit ingrained in so much of the Jewish Zeitgeist that it is tainting all Jews. It can almost be said that the mistrust is justified, based in Ponzi Schemes, privatized, inadequate education to the detriment of non-Jews and secular Jews and an uncanny ability to circumvent laws. Everything from vaccines and education to financial accountability and governmental regulations, are not outside the scope of subject the pubic Jewish collective is trying to manipulate.

Those of us willing to call out wrongs are relegated to courtrooms and lawsuits with no end in site. As such, anti-Semitism is far more difficult to counter than it was in the times immediately preceding Hitler’s power and during the war. And if our Jewish brothers are not held to account, Jews everywhere will be castaway as pariahs.

The Platinum Partners Ponzi Scheme, the Madoff Ponzi Scheme, the Philip Esformes conviction are so deeply rooted in the Jewish run ethos, they are leaving far more than financial ruin in their wake. They are increasing the breadth of a community of people who hate Jews because we are viewed in the unfavorable light these Jewish fraudsters shine on our community. That these frauds are perpetrated with such grace and ease by members of the Jewish community is a travesty.  That the moral compass of the community supporting them is so skewed it is unwilling to even acknowledge that the acts of Platinum’s Partners’ partners were calculated, orchestrated and choreographed like any great magic show.

And if Platinum Partners’ partners do not get convicted, the result could be catastrophic for Jews everywhere. If we are incapable of bringing swift and harsh justice against those Jews who commit wrongs, we will all suffer the consequences. That fraud is with increasing frequency seeping into the “Jewish identity” and is damaging that identity for everyone. The Platinum Partners case is a blight on our community and it should be viewed as such, whispered like the big C-Word (cancer) when our parents talked at the Shabbos table about a friend diagnosed days before. Jewish orchestrated fraud is a cancer, a blight, a disease of the worst form and if not stopped, it will spread. This is not anti-Semitic but an honest view of the dangers that rampant fraud within our community creates.

The Magic of the Platinum Partners’ Ponzi Scheme was the ease with which it was orchestrated, the complexity of the scheme and the corresponding complications involved in painting a clear picture for a jury such that the jurors can convict. The case was and continues to be simply too chaotic, too scattered, too unintelligible and we opine that this is by design, a master creation by a brilliant defense team.

If the Judge does not rule a mistrial, we believe there is a significant likelihood that this jury will come back without the clarity necessary to convict. Like the crimes themselves, a mistrial or a failure to convict will be deeply unjust for those defrauded, for future victims, for public trust and most importantly, for Jews everywhere and the world’s perception of us. We will once again be viewed as having a magical ability to escape unscathed.

It is very likely that when the Defendants sat with their team of lawyers, negotiated their joint defense agreements, and strategized, it was clear that the first thing they needed to manipulate was the jury. They did not trust their fates to fellow Jews, a jury of their peers, but to the diametric opposite, a mostly African America pool of jurors likely inexperienced in the private equity investment world.

Mark Nordlicht, David Levy and Joseph SanFilippo are smart, savvy and well-educated. They are the epitome of privilege and money. Nordlicht comes from a polished, Jewish, observant Yeshiva-related upbringing. Levy is much the same. These are not men who have ever had to live from paycheck to paycheck. These are not men who have experienced racism or the African American experience, a far cry in fact. And the jury, with all respect due to each of the jurors, most likely knows little about what it is to be born with a silver spoon in one’s mouth. The Defendants are, have been and will always be men of privilege. The jury, as a matter of profiling by appearance alone, does not share this providence.

The breadth of the evidence that was admitted, or excluded, was a remarkable play of legal defense gamesmanship, cleverly manipulated to share as little damaging information as possible. This is not unusual. But anyone who thinks that this was not calculated as the financiers of Platinum’s top brass were defrauding their investors is either naive or stupid. We believe, based upon previous experiences of some of that brass and their closest confidants, that Platinum Partners knew what to expect if their fiefdom fell. And as they were performing their magical feats of financial optical illusions, they set the stage for a worst-case-scenario.

Very early on the Judge presiding over the case ruled that Murray Huberfeld’s conviction for bribery, the avalanche that set in motion the public unraveling of Platinum Partners, was not permissible evidence in the case against Nordlicht, Levy and SanFilippo. The fact that Huberfeld was acting in consort with the partners at Platinum to bribe Norman Seabrook and entice COBA money was deemed to be outside the scope of the presentation that the government could make to the jury. As such, the corresponding testimony of Jonah Rechnitz in the previous trials was also not admissible evidence. The legal maneuvering was brilliant, awe inspiring.

Huberfeld acted as an Agent of Platinum Partners when he convinced Seabrook to invest. He was one of Platinum Partners’ alter egos. His actions and the resulting convictions could have set the stage for a clear picture for the jury regarding the maneuvering to bring in investors.

But it was deemed inadmissible.

The judge has already dismissed the count of “Fraudulent Investment Scheme” from the indictment.  Why? Because the government proved no match for the defense team. They failed ingloriously to use the same arguments the judge made for dismissal, as proof of guilt, namely that Platinum Partners’ partners calculated what needed to be put in place to cover their collective asses, the “CYA” term of endearment. The hiring of a valuation team was not a sign of care and compliance, quite the opposite. It was a distraction to mislead the government into believing that the valuations were conducted honestly.

 

B. Fraudulent Investment Scheme
As to the fraudulent investment scheme, defendants’ motion for a judgment of acquittal under Rule 29 is granted as to the allegation that they overvalued level 3 assets but otherwise denied.
The indictment alleges that defendants overvalued Platinum’s level 3 assets, but none of the Government’s witnesses challenged the accuracy of Platinum’s valuations of these assets. The Government has not even introduced witnesses who purport to be qualified to challenge these valuations, let alone attempted to introduce expert witnesses who could have guided the jury through assessing the values of level 3 assets – which are, by definition, difficult to value.

Case 1:16-cr-00640-BMC Document 752 Filed 06/17/19 Page 4 of 9 PageID #: 10473
5
Nor has the government shown that Platinum’s process for obtaining these valuations is so deeply flawed that the jury can fairly infer that the valuations were false, and fraudulently so. To the contrary, the testimony has shown that Platinum hired third parties to confirm its valuations; hired an experienced director of valuations; and maintained a valuation committee. There is insufficient evidence for a reasonable juror to conclude that defendants have falsified any valuations, let alone evidence that would support defendants’ conviction for fraudulently overvaluing assets.

Contrary to the Judge’s comments, Level 3 assets are not difficult to value if you mark them against the market in which they are traded. The government simply needed to find a market against which to mark the assets.

Justice will not be served because the perpetrators of the crimes have far greater knowledge of their craft than the government prosecutors. The brilliance of the defense attorneys in making it all look so complicated is not by chance. Platinum’s partners took their precautionary measures when they placed a value on the assets well above their market. They had a team of quasi-conspirators in place.

The government needed to bring in a valuation expert to counter what Platinum was suggesting, that the valuation team was evidence they they acted admirably and honestly. Our analysis is that the Defendants breached their fiduciary duty to their investors by over-valuing assets, that they had taken all the necessary precautions to make it look kosher and that this was choreographed with remarkable dexterity. In reality, the magicians at Platinum had performed what is known as “CYA” and had done so with the skill commensurate with their experience, what any good hedge fund manager would have done.

Platinum Partners’ partners knew what they were doing. The very argument that the judge makes regarding Platinum’s valuation team should be the argument that substantiates the fraud: that Platinum hired the people who would paint a rosy picture to cover up financial impropriety. They brought in Picasso and commissioned him a painting, and paint he did.

Platinum knew its assets were worth far less than they were being valued and created a charade. The told “a tale, full of sound and fury” (Shakespeare) but for them, it is signifying exactly what they wanted it to… everything. 

But we digress. As the Judge rightly pointed out, a reasonable juror would likely not have concluded that the Defendants falsified valuations.

We believe, however, that it is not because the charge is wrong but because the government did not understand that the very act of hiring a valuation committees and valuations’ experts was just part of the magic, the optical illusion.

Platinum Partners’ victims are many, a vast range of people, mostly from their own community. Their victims are also COBA members who deserve the best the government has to offer and is not getting their justice.

The Defendants’ seats in the courtroom are full, almost every day while the Plaintiff’s seats are comprised mostly of victims, their lawyers, journalists and those most curious. It is a sad state of affairs for the greater Jewish collective.

For a parent, a child can do no wrong so it is understandable that the Defendants’ families would be making a show of support. But, an acquittal poses an existential threat to the greater Jewish identity.  Not only do we surmise that these men are likely already planning their next major magic show, but we fear the darkness that would come of an acquittal.

Justice should be served. The victims are entitled to justice and the greater Jewish collective deserves the optics of an equitable distribution of accountability, only accomplished by a conviction. But the government will need to start pulling better punches, or a rabbit from a hat.

LM

A Platinum Response – Fear Would Prevent Reporting, The Nordlicht Hedge

LAW360 [by subscription]

Law360, New York (May 28, 2019, 8:15 PM EDT) — A former chief financial officer for Platinum Partners on Tuesday told a New York federal jury that Platinum co-founder Mark Nordlicht told him that “mutually assured destruction” would keep aggrieved investors from ratting the hedge fund manager out to regulators, despite Platinum’s inability to make timely repayments.

Daniel Mandelbaum, who was Platinum’s CFO for about 9 1/2 months in 2014 and 2015, said he spoke to Nordlicht amid a liquidity crisis that year at Platinum’s signature fund, Platinum Partners Value Arbitrage Fund.

Mandelbaum testified that he was protesting Platinum’s practice of preferentially repaying certain investors — including insiders and those with large stakes in PPVA — ahead of other investors who had outstanding redemption requests.

Nordlicht, however, told Mandelbaum at a meeting in Nordlicht’s office that investors wouldn’t complain to the Securities and Exchange Commission, since if the regulator got involved, PPVA would be shut down and its assets sold at fire sale prices, Mandelbaum testified.

To continue reading, click here.

The Three Identities of Fraud Within the Jewish Community – Platinum and the Hebrew, English and Yiddish Lexicon

Platinum Partners’ partners’ Indictments – Back to to the Very Beginning, and the Yiddish, Hebrew and English Identities of the Actors Involved

[Edited 5/27/19 5:23pm]

Dear Reader:

As a point of clarification, to our last blog post, we have gone back to the very beginning, the original indictments in 2016 as posted by the Department of Justice. (see below).

The entire scheme is extremely complicated and significant information has been added since the initial indictment. For our purposes, we caught on because the actors involved follow the same patterns in every fraud they commit, beginning as early as NorCrown Trust.  These men, particularly Huberfeld and Nordlicht did not deviate from a recipe that had already yielded them significant success and as time went on they simply perfected. There was not reason to.

However what has not been emphasized, and until recently with our own litigation playing out in the courts we did not realize, is that there is another aspect to these crimes, the KYC (Know Your Client) or in this case, knowing your audience and more particularly what language they would be most likely to warm up to. The players in these criminal endeavors, whether Platinum or real estate, mortgage fraud, nursing home fraud, all have something in comment – a keen sense of their audience. Platinum’s partners used that sense and the language required to provide the audience with comfort  to gain credibility, to gain trust and ultimately to play out a fraud of epic proportions. While the amount of money stolen out from under the hands of investors was not money of Madoff proportions, Madoff was straightforward in his scheme. He had been a reputable businessman. He was savvy, a grown up amongst men. There was a measure of honor among his type of thievery. Madoff’s crimes were less that of a seasoned criminal mastermind; but more like someone who stepped off the reservation… because he could.

In the case of Platinum, these guys understand the differences, however minute, between dealing with someone in Yiddish, someone in Hebrew and someone in English. These were three uniquely different types of clients and needed a vastly superior approach to gain their trust. The scheme involved a deep understanding of cultural differences and a brilliant mechanism for utilizing that knowledge to their advantage; and the perpetrators are masters of disguise. 

We have been told by multiple sources that the key to fraud within the religious community is really who calls whom by what name. For Mark Nordlicht, there were those who knew him as Moshe and those who knew him as Moshe Mark and those for whom he was simply Mark. It depended upon the shifting winds and the perceptions of the audience with which he was mingling. 

In Andrew Kaplan’s testimony he outlines 200 secret recordings he took of Mark Nordlicht, which he maintains were taken for the purpose of protecting his salary and other business matters. Perhaps he knew that at some point he would need to defend himself. One can only speculate. But it is clear from the testimony and the recordings that Nordlicht had a keen sense of language and which words to use for which thoughts he wanted to convey. This is no different from secret Morse codes or other codes used by governments and individuals communicating in languages they want kept between themselves. And the beauty of Hebrew and Yiddish is that each expression can have multiple meanings; but anyone speaking or listening knows exactly and precisely what is being said and in what context. The words have biblical messages and political messages and nuanced undertones. Gaining the key to how to communicate with the investors Platinum sought and the big money it wanted was in the language – the masters of disguise.

The same holds true of Moshe Mark Feuer. It is noted that he has maintained and continues to maintain his innocence, that he was a victim. We think that is farcical in all of its iterations, whether in Hebrew, Yiddish or English; but it is not for us to decide. Moshe Mark Feuer had all of the qualities of a businessman and the savvy to use words in different languages and lexicons which would state what he understood and give an indication on how to hide his thoughts from whomever was not on the “need to know” list at any given time. 

Expressions like “b’lev shalem” comes up quite often in the Kaplan tapes with Nordlict. It means wholeheartedly. The word “mehalech” in Hebrew is another. The translation referred to the complications they would have. Nordlicht’s brilliant defense team has maintained that this was all in humor and a jury comprised of African American jurors might accept that explanation, not understanding the cultural implications. But those of us sitting on the sidelines watching this play out know better. 

What we have discovered through our own experiences is that the usage of different names in different languages can be found on deeds and loans and financial transactions of people who function within the religious community. Moshe Mark Nordlicht has three separate identities as do many of the other actors within the communities we investigate. Their homes, their bank accounts, their businesses, their family trusts, their telephone number, their entire lives revolve around the ability to carefully maneurver three uniquely separate identities, one in Hebrew, one in English, on in Yiddish and sometimes iterations of those.  

The language did play a role in encoding the nature of the transactions and this should be something a jury is helped to understand. It is key to the frauds that we have covered on each page of this blog in one form or another, with very few exceptions.

We just hope someone equally matched with the brilliance of the defense team and a cultural understanding of the interactions between the bad actors in this sordid affair is listening and paying attention; and has the ability to convey this to the Platinum Partners’ partners’ jurors.

 

Department of Justice
U.S. Attorney’s Office
Eastern District of New York

FOR IMMEDIATE RELEASE
Monday, December 19, 2016

Platinum Partners’ Founder And Chief Investment Officer Among Five Indicted In A $1 Billion Investment Fraud

Two Additional Individuals Indicted In A $50 Million Bond Fraud Involving Black Elk Energy, One Of Platinum’s Largest Portfolio Companies

BROOKLYN, N.Y. – An eight-count indictment was unsealed this morning in federal court in Brooklyn, New York, charging seven defendants, all of whom are or were formerly affiliated with Platinum Partners L.P. (Platinum), a purportedly $1.7 billion hedge fund based in New York, New York.  The indicted individuals are: Mark Nordlicht, the founder and Chief Investment Officer of Platinum; David Levy, the co-Chief Investment Officer of Platinum; Uri Landesman, the former Managing Partner and President of Platinum; Joseph SanFilippo, the Chief Financial Officer of Platinum’s signature hedge fund; Joseph Mann, a member of Platinum’s Investor Relations and Finance Departments; Daniel Small, a former Managing Director and co-Portfolio Manager of Platinum; and Jeffrey Shulse, the former Chief Executive Officer and Chief Financial Officer of Black Elk Energy Offshore Operations, LLC (Black Elk).[1]

Nordlicht, Levy, Landesman, SanFilippo and Mann are charged with securities fraud, investment adviser fraud, securities fraud conspiracy, investment adviser fraud conspiracy and wire fraud conspiracy for defrauding investors through, among other things, the overvaluation of their largest assets, the concealment of severe cash flow problems at Platinum’s signature fund, and the preferential payment of redemptions.  Nordlicht, Levy, Small and Shulse are charged with securities fraud, securities fraud conspiracy and wire fraud conspiracy for defrauding Black Elk’s independent bondholders through a fraudulent offering document and diverting more than $95 million in proceeds to Platinum by falsely representing in the offering document that Platinum controlled approximately $18 million of the bonds when, in fact, Platinum controlled more than $98 million of the bonds.

Nordlicht, Levy, Landesman, SanFilippo, Mann, Small and Shulse will be arraigned later today before United States Magistrate Judge Lois Bloom at the United States Courthouse, 225 Cadman Plaza East, Brooklyn, New York.  Shulse’s initial appearance for removal proceedings to the Eastern District of New York is scheduled for this afternoon at the United States Courthouse, 515 Rusk Avenue, Houston, Texas.

The charges were announced by Robert L. Capers, United States Attorney for the Eastern District of New York; William F. Sweeney, Jr., Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office (FBI); and Philip Bartlett, Inspector-in-Charge, United States Postal Inspection Service, New York Division (USPIS).

“As alleged, 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.  Platinum Partners purported to be a standard bearer in the hedge fund industry, reporting annual average returns of more than 17 percent since inception in 2003.  In reality, their returns were the result of the overvaluation of their largest assets, which eventually led to Nordlicht and his co-conspirators operating Platinum like a Ponzi scheme, where they used loans and new investor funds to pay off existing investors,” stated United States Attorney Capers.  “The charges and arrests announced today reflect our steadfast commitment to holding accountable hedge funds on Wall Street who rip off investors for personal gain.”  Mr. Capers thanked the Securities and Exchange Commission, New York Regional Office (SEC) for their significant cooperation and assistance during the investigation.

“This case shows how several members of this firm allegedly manipulated and lied to investors about the health of the investments they were making, and then plotted ways to cover up their actions.  The FBI and our law enforcement partners do all we can to stop these schemes and to keep fraudsters from stealing from investors, but we can’t do it alone.  We need people to call us when they see things that don’t add up, or don’t make sense,” stated FBI Assistant Director-in-Charge Sweeney.

“These Platinum Partners employees devised a scheme to lure investors to funds they managed knowing the funds were insolvent and would not return the high yields they claimed. Postal Inspectors will never tolerate unfairness in the market and will vigorously pursue and bring to justice anyone who breaks the law, ensuring there is an honest and secure trading environment for investors,” stated USPIS Inspector-in-Charge Bartlett.

*          *          *

As detailed in the indictment, between 2011 and 2016, Nordlicht and Levy, together with their co-conspirators, orchestrated two separate schemes: (i) a scheme to defraud investors and prospective investors in funds managed by Platinum; and (ii) a scheme to defraud third-party holders of Black Elk’s bonds.

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 charges were brought in connection with the President’s Financial Fraud Enforcement Task Force.  The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud.  Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations.  Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants.  For more information on the task force, please visit http://www.StopFraud.gov.

The Defendants:

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

E.D.N.Y. Docket No. 16-CR-640 (DLI)

 


 

[1] The charges announced today are allegations, and the defendants are presumed innocent unless and until proven guilty.

Topic(s):
Financial Fraud
Securities, Commodities, & Investment Fraud
StopFraud
Updated December 19, 2016
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