Unbelievable description of the Platinum fraud.
The fall of Black Elk Energy began in New York City nearly a decade ago, with a meeting, a handshake and a loan.
Looking back, those were halcyon days for John Hoffman, founder of the Houston oil and gas company – before an explosion tore through an offshore rig and killed three workers, before federal investigators accused the hedge fund that made the loan of bilking investors, and before one of his top executives turned on him.
Hoffman, forced out of Black Elk in 2014, is now at the helm of a new company, and barely keeping the doors open. Black Elk is bankrupt and facing criminal charges in a federal case awaiting trial. And Hoffman’s one-time backer, Platinum Partners, is under federal indictment, accused of pillaging Black Elk and the hedge fund’s investors.
Last month, federal investigators arrested six Platinum executives and the man who replaced Hoffman as CEO, alleging they overvalued Black Elk’s assets, concealed “severe cash flow problems,” extracted high management fees and illegally diverted to Platinum more than $95 million owed to creditors holding Black Elk’s bonds. Platinum attorneys did not return calls seeking comment.
“I didn’t think (Platinum) had the guts to take it all,” Hoffman said in an interview. “I thought they’d take a large share. Ends up they took it all.”
The rise and fall of Black Elk Energy highlights the risks of the oil and gas business, which demands piles of cash that can quickly vanish through bad luck, bad planning, bad management or all three. It also reveals a shadow banking system that lends at double-digit interest rates to firms desperate for capital and has few qualms about gutting companies when they don’t perform.
BLACK ELK TIMELINE
2003 Investment manager Mark Nordlicht starts the hedge fund Platinum Partners in New York.
2007 Engineer John Hoffman and a partner open Black Elk Energy in Houston.
2008 Hoffman and partner fly to New York looking for capital; meet Platinum executives.
2009 Black Elk buys 35 oil fields on 71,000 acres from the Houston company W&T Offshore for $30 million, the first major purchase of many to come.
2011 Black Elk ends year with 240 oil production platforms in the Gulf of Mexico on 300,000 acres, producing about 14,500 barrels of oil and gas per day.
2012 Workers welding on a company platform in the Gulf ignite fuel vapors, leading to a string of exploding tanks and killing three.
2013 Black Elk signs drilling contracts worth about $90 million, but Platinum reneges on promises to send capital and Black Elk can’t pay the contractors.
2014 Renaissance Offshore, a Houston production company, buys Black Elk oil fields for $170 million; Platinum engineers a bondholders vote, federal investigators say, that diverts $95 million in proceeds to Platinum rather than contractors and bondholders.
2015 Federal prosecutors file involuntary manslaughter and other charges stemming from the Gulf explosion against Black Elk and contractor Grand Isle Shipyards. Black Elk files for bankruptcy.
2016 The U.S. attorney of the Eastern District of New York announces the indictment of six Platinum executives and one Black Elk executive, alleging they overvalued Black Elk assets, concealed “severe cash flow problems,” extracted high management fees and illegally diverted to Platinum money owed to bondholders.
Hoffman now says he had no idea of the financial disaster he was walking into when he flew from Houston to New York in 2008 and made a deal with Platinum. He thought he had found a deep-pocketed partner to fuel his vision for Black Elk at a time when loans were hard to come by. Even after disaster struck an offshore rig in the Gulf of Mexico, Platinum seemed to have the money and confidence to right Black Elk and put it back on a path to success.
But one day in 2014, Hoffman got suspicious pretty quickly.
Knocking on doors
The following account is based on interviews, financial filings and court records in civil and criminal cases:
Hoffman started Black Elk in 2007, raising money from private investors and using the cash to buy shallow-water oil fields in the Gulf for bottom-barrel prices from companies that no longer wanted them. Black Elk reworked the old wells with updated technology and boosted production.
Not a year later, the U.S. economy crashed, and oil prices with it. In late 2008, Hoffman and co-founder James Hagemeier flew to New York City to nail down capital. Over the course of two months, they knocked on the doors of at least 50 investment firms.
“It was a tough time to look for funds,” Hoffman said.
Finally, a middleman suggested the two meet the executives of the New York hedge fund Platinum Partners.
Platinum was founded in 2003 by Mark Nordlicht, who started as a young trader in the pits of the New York Cotton Exchange and opened two other investment firms before Platinum. He and Platinum gained a reputation for investing in risky companies and returning double-digit profits for investors.
Platinum offered Black Elk two loans together worth about $50 million – at 20 percent interest. But Platinum’s business model didn’t just loan money to desperate companies. The loans came with “kickers,” or clauses that gave Platinum growing ownership stakes in the firms over the lives of the loans.
“We were new and so small,” Hoffman recalled. “We didn’t draw much interest from the bigger players. Platinum seemed like a good fit.”
In 2009, Black Elk began a buying spree with Platinum’s cash, later supplemented by $150 million raised in a bond sale. By 2011, it owned leases on 300,000 acres in the Gulf of Mexico that produced about 14,500 barrels of oil and gas per day, according to securities filings.
“All I know was when we had an acquisition, Mark Nordlicht said, ‘Don’t worry about it,’ ” Hoffman said. “And he always had the money.”
By 2012, Black Elk, with a market value that Platinum estimated at nearly $300 million, was the largest asset in Platinum’s most successful fund, then valued at $700 million. Then it all unraveled.
In November 2012, workers welding on a Black Elk platform ignited fuel vapors, leading to a string of exploding tanks. The explosion killed three workers, injured at least two others and spilled hundreds of gallons of oil into the Gulf.
The fall out was immediate for Black Elk’s finances. Oil production fell. Legal fees mounted. (In 2015, federal prosecutors filed involuntary manslaughter and other criminal charges against Black Elk and contractor Grand Isle Shipyards, which both pleaded not guilty. Hoffman was not charged individually.)
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Black Elk’s lenders reduced lines of credit and demanded more collateral. Black Elk started selling assets to raise cash.
Still, in December 2012, Hoffman flew to New York to present Black Elk’s growth strategy to Nordlicht and another Platinum executive, David Levy. Platinum promised as much as $120 million in capital for the company’s 2013 drilling campaign, Hoffman said, and Black Elk signed drilling contracts worth about $90 million with energy services companies.
Four months later, Platinum reneged on its pledge, leaving Black Elk unable to pay the contractors.
“It was just such a deep hole,” Hoffman said. “We couldn’t dig out of it.”
‘This is code red’
By the start of 2014, Black Elk had a new chief financial officer, Jeffrey Shulse, a lawyer and accountant whom Hoffman had hired a few years earlier to run a well-plugging company created by Black Elk. Platinum pushed Hoffman hard to make Shulse the CFO of Black Elk, Hoffman said.
Shulse wanted Hoffman out of the company. He wouldn’t comment for this story but said in a court deposition that Black Elk was ineptly managed, spending money it didn’t have on luxuries like boats, helicopters and cigar rooms at the office. Hoffman began secretly tracking and reading Shulse’s every email, Shulse said in the deposition; Shulse hired investigators to see if Hoffman had bugged his office.
Black Elk was by then effectively insolvent, federal investigators said.
Platinum, however, owned a $98 million stake in Black Elk, about 76 percent of the company, according to Hoffman’s files. And Platinum had a plan to get as much money back from the sinking oil company. It ordered Shulse to find a buyer willing to pay $170 million for Black Elk’s seven most valuable oil fields.
Shulse, meanwhile, was secretly trying to get Hoffman’s job. In March 2014, Shulse sent an email to Levy asking to take over as Black Elk CEO – and, according to the indictment, get paid $1 million from sales of the Black Elk’s assets.
“I want to be aligned with Platinum and friends of Platinum,” Shulse wrote in an email seized by investigators. “What’s good for them is good for me.”
Shulse found a buyer, the Houston production company Renaissance Offshore, for the Black Elk holdings. But Platinum still had a problem. The terms of Black Elk’s bonds required the company to pay off bondholders before it did anything else with the money.
Platinum was having its own problems. No longer generating double-digit returns, investors were pulling out money, and Platinum was barely able to pay redemption requests to investors, according to the indictment. Failure to cash in on Black Elk assets would “be the end of the fund,” Nordlicht wrote in an email. “This is code red,” he later said.
By May 2014, Platinum executives decided they had to persuade bondholders to let Black Elk use the sale proceeds for other purposes than paying off the bonds. And that change required a vote of the bondholders.
Hoffman didn’t like the move. But he didn’t oppose it, either. What bondholder “with half a brain,” Hoffman thought, would agree to give up his rights?
Platinum, again, had it figured out. It began buying Black Elk bonds – so that it could vote to pay itself, according to the indictment.
Platinum executives leaked information about Black Elk’s finances, driving down the value of the bonds, which they then bought at healthy discounts, federal prosecutors alleged. By April 2014, Platinum owned $99 million of the original $150 million in bonds, but concealed its ownership, investigators said, by selling all but $18 million to four investment funds that Platinum controlled.
With Platinum and its entities holding most of the bonds, the proposal to spend the cash from the oil field sales as the company saw fit was easily approved.
Ripping TVs off walls
On Aug. 18, 2014, Platinum sent an email to Shulse directing him to wire $70 million to Platinum. Two days later, Black Elk sent another $25 million from the Renaissance sales to Platinum.
The next Monday, Hoffman showed up at Black Elk. The doors were locked and office vacated, he said, and he had to call the building superintendent to get in. What was left of the company had moved in with Shulse’s well service company, which was by then also controlled by Platinum.
Not a week later, Shulse, now CEO, held something of a yard sale in the old office. Afterwards, former Black Elk employees said they went back inside the building. Computers, refrigerators and office furniture were all gone. Trash littered the floor. TVs yanked out of the walls, mounts and all, left fist-sized holes in the drywall.
“What a disgraceful way to go out,” Hoffman said.
By then, Black Elk had laid off about 100 workers, most of its staff.
On Sept. 11, 2014, Platinum authorized Shulse to pay himself a $275,000 bonus. Platinum executives, meanwhile, were paying themselves as well, according to the indictment. From 2012 to 2015, even as Black Elk crashed and Platinum scraped for cash, executives consistently told investors the fund was returning double-digit profits, justifying charges of as much as 20 percent in management and incentive fees, or $111 million in total over the four years, federal authorities alleged.
Many of Black Elk’s contractors were never paid. In August 2015, some filed a petition to liquidate Black Elk through Chapter 7 bankruptcy and use the proceeds to pay creditors. By the following June, Platinum didn’t have enough cash to pay investors trying to pull their money out the Platinum fund.
On Dec. 19, the U.S. Attorney of the Eastern District of New York announced the indictment of seven on fraud and conspiracy charges: Platinum executives Uri Landesman, Joseph Sanfilippo, Joseph Mann, Daniel Small, Levy and Nordlicht as well as Shulse. They all pleaded not guilty.
U.S. Attorney Robert L. Capers, whose office investigated the case, estimated that investors in Platinum’s fund lost $1 billion.
Shulse’s attorney, F. Andino Reynal, said Shulse was told what to do by Platinum.
“He didn’t commit a crime here,” Reynal said. “I’m very confident that once the jury has heard all the facts, they’ll determine he’s not guilty.”
Hoffman’s hands still shake when talking about Platinum. His cheeks still redden. The scandal has hamstrung his new company, P3 Petroleum, which can’t raise money to grow. The company pumps about 50 barrels a day and employs seven workers.
“We’ve been going at it for more than two years now,” Hoffman said. “We don’t have a lot to show for it.”
PLATINUM PARTNERS AND THEIR OUTRAGEOUS RETURNS
LostMessiah 4 January 2016
LostMessiah was and has been the brainchild of several people who began this venture last February with a few stories already in our heads, Platinum being front and center.
From the very beginning we made clear that something was very wrong with Platinum, beginning with the extraordinary, though irrational returns. We then raised the question of David Bodner and a piece of property (191 Viola Road) that transferred names rather nefariously in Rockland County, New York.
We questioned the Africa-Israel connection and most notably those who financed Platinum in its early years: David Bodner and Murray Huberfeld and their band of merry… Philanthropists? No.
We posted diagrams.
We showed you the connections between Seabrook and Platinum, COBA and Platinum. We even spoke of Black Elk, a story still in its making. We believe that most of the Platinum investor money (which is likely currently in the family trusts of Bodner and Huberfeld and in the yeshivas begun by Nordlicht and his family) belongs to Black Elk investors who were taken for a ride during a tender offer which was specifically intended to drain the company of its assets.
That story is still one to be told but unfortunately 12 pages later, we have found a web of lies and a spider with far more than eight legs and we have not even scratched the surface.
The investor money has not been spent, in our view. It has been funneled. The trick is going to be getting it out from under the various trust laws protecting it. The key to Huberfeld’s participation in all of this beyond his family trusts is his property which has more recently been transferred to his wife in a quit-claim deed.
There were people questioning – just too few listening.
No One Questioned This Hedge Fund’s Madoff-Like Returns
Red flags abounded while hedge fund claimed 17% annual gains
Platinum was embroiled in rogue trades, Florida Ponzi scheme
In the years before Mark Nordlicht was arrested for what’s alleged to be one of the biggest investment frauds since Bernie Madoff’s, U.S. authorities had plenty of reasons to suspect something might have been fishy about his hedge fund, Platinum Partners.
As far back as 2007, Bank of Montreal accused Nordlicht of helping a rogue trader, costing it more than $500 million. Three years later, when the Securities and Exchange Commission was investigating what it called a “scheme to profit from the imminent deaths of terminally ill patients,” the agency discovered that Platinum had funded the deals. And in 2011, a Florida lawyer who confessed to running a $1.2 billion Ponzi scheme testified that Nordlicht, his biggest funder, lied to help him lure new investors.
And then there were the remarkable profits: 17 percent annually on average from 2003 through 2015, with no down years. The returns were almost as smooth as the fake gains that Madoff claimed year after year, as measured by a popular metric called the Sharpe ratio. Continue reading
“THE TRAIL OF PEOPLE WHO CALLED HIM THEIR BROTHER, THEIR BEST FRIEND”…
We have read dozens of comments about Huberfeld, Nordlicht and Landesman, amongst others, many of which accuse us of attacking their friends. We have one particular commenter who thinks we should leave this story alone, particularly where Huberfeld is concerned. He is a good person, she says. He has family. He did not go in intending to defraud his investors.
Yes. He did. As did the others.
She then said that if people lost their children’s college funds they were, in sum, foolish to have invested it all. Well, the same has been said of Madoff. In fact, in some interview somewhere Madoff is quoted as saying something like: If they were stupid enough to trust me with all of their money, they deserved to lose it.
We beg to differ.
Platinum’s partners are serial manipulators, preying on the greed of some, the weakness of others and the trust of their friends and families. You, the investors were taken for a ride. The same can be said of Madoff’s investors.
See the video below.
For further information:
IF ONLY THE AUTHORITIES WOULD PAY AS MUCH ATTENTION AS OUR READERS!!! TO THOSE OF YOU WHO ARE PAYING ATTENTION, THANK YOU!!!
Murray Huberfeld, Signing over Property to his Wife… For Love and Affection
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HUBERFELD LAURA (D)
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HUBERFELD LAURA (R)
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HUBERFELD MURRAY (D)
[Originally reported in the New York Post on September 12, 2016]
The troubled New York hedge fund that is plaguing the city prison guards’ union has also ensnared the family of Donald Trump’s son-in-law Jared Kushner, The Post has learned.
Hedge fund firm Platinum Partners, which is being investigated by Brooklyn federal prosecutors, was short on cash and desperately borrowing money in the days leading up to the June arrest of one of its co-founders, documents shows.
Among the people it turned to for cash were Marisa and Richard Stadtmauer, the aunt and uncle of Jared Kushner, according to a document from Platinum’s court-appointed liquidator, a copy of which was obtained by The Post. Kushner is married to Trump daughter Ivanka.
On May 27, Marisa Stadtmauer loaned Platinum $4.1 million, the liquidator said. It got another $6.4 million from Richard Stadtmauer, the brother of Kushner’s mother, Seryl, and former vice chairman of family’s real estate empire, Kushner Companies.
Platinum, which is headquartered in Manhattan, also received a $2.3-million loan from the National Society for Hebrew Day Schools the same day it borrowed money from the Stadtmauers, the document said.
Rabbi Zvi Bloom, executive director of the national educational organization, did not return a request for comment.
Shortly after the loans were made, Platinum’s co-founder and Stadtmauer’s pal, Murray Huberfeld, was arrested and charged with bribing Norman Seabrook, the head of the NYC prison guards’ union for a $20 million investment.
Seabrook was also arrested and relieved of his post as head of the Corrections Officers’ Benevolent Association.
Stadtmauer didn’t return requests for comment about the money, which was revealed in a court document filed by liquidation firm RHSW Caribbean, which has taken over Platinum’s flagship fund at the direction of a judge in the Cayman Islands, where the fund is registered.
His chances of being repaid are looking slim.
At the time of the loan, the flagship fund — which makes up the bulk of Platinum’s $1.3 billion in assets — had just $68,530 in cash.
The cash pile has since grown to $881,976, RHSW said. Still, it’s not enough to make a dent to the $365 million Platinum ‘s flagship fund owes Wall Street traders and other lenders, RHSW said.
Stadtmauer and Huberfeld’s ties go back more than a decade as investors in NorCrown Bank, a Livingston, N.J., bank controlled by Kushner’s dad Charles.
To read more click here.
Platinum Partners arrests are scant consolation for alleged victims
When six executives of Platinum Partners, including founder Mark Nordlicht, were arrested on Monday on federal charges of running a more than $1 billion hedge fund fraud, people who had long alleged they were harmed by the New York-based firm felt some vindication.
But the possibility that each defendant might face prison terms has done little to soothe their continued anger over losses that may never be recouped.
One such person is Houston-based energy entrepreneur John Hoffman. In the charges, the U.S. Department of Justice and the U.S. Securities and Exchange Commission alleged what Hoffman had long believed – that Platinum, with the help of a seventh man also arrested, Jeffrey Shulse, had illegally profited from the failure of Hoffman’s company, Black Elk Energy Offshore Operations LLC.
Hoffman said in a telephone interview on Wednesday that he did not expect to recover anything and that his involvement with Platinum had cost him the company he founded and at least $500,000 in legal fees. He also described stress-related health problems and difficulty fundraising for a new energy venture.
Hoffman expressed anger that thousands of Gulf Coast-area families were stiffed: mostly the small businesses that were never paid for work on Black Elk’s oil and gas drilling platforms before it went bankrupt amid lower oil prices and Platinum’s alleged corporate cash grab.
All six Platinum executives pleaded not guilty and an attorney for Shulse told Reuters he plans to do the same. A spokesman for Platinum declined to comment for this article, and the firm has not offered any public comment. A person familiar with Platinum’s thinking told Reuters in April that the firm always acted within the limits of the law despite its aggressive investment approach.
Launched in 2003, Platinum was known as a high-performing hedge fund manager that backed struggling companies and employed esoteric investment strategies such as litigation finance and high-interest consumer loans. (Reuters Special Report: reut.rs/1TRovwx)
The government charges on Monday included allegations of over-valuing assets and misleading clients on the health of the firm. The government demanded that the hedge fund return money that was allegedly illegally taken from clients and Black Elk bondholders, and pay related penalties.