A Platinum Array of Victims – Arrests are Not Enough

File photo of rescue crews surrounding Black Elk oil platform in the Gulf of Mexico
Rescue crew surrounds an oil platform operated by Houston-based Black Elk Energy which exploded off the coast of Louisiana in the Gulf of Mexico, in this November 16, 2012 file photo. REUTERS/Sean Gardner/Files

 

Platinum Partners arrests are scant consolation for alleged victims

By Lawrence Delevingne | NEW YORK

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.

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Chai – Black Elk, Regents Amongst the Most Optionable of Connections

The 18 Cases to Follow – A Thread that Ties Black Elk, Platinum and Optionable, Inc. – oh… and Where’s Bodner?

 

Schmidt v. Nordlicht et al

Filed: December 9, 2016 as 4:2016cv03614
Plaintiff: Richard Schmidt
Defendant: Mark Nordlicht, David Levy, Daniel Small and others
Cause Of Action: Notice of Removal
Manchester Management Company, LLC et al v. Echo Therapeutics, Inc. et al

Filed: November 29, 2016 as 1:2016cv09217
Plaintiff: Manchester Management Company, LLC , Manchester Alpha, L.P. , Jeb Partners, L.P. and others
Defendant: Echo Therapeutics, Inc. , Michael Goldberg , Shepard Goldberg and others
Cause Of Action: m(a) Securities Exchange Act
Romain et al v. Seabrook et al

Filed: October 31, 2016 as 1:2016cv08470
Plaintiff: Elizabeth Ann Romain , Herman Jiminian , Jeanette Feliciano and others
Defendant: Norman Seabrook, Elias Husamudeen , Joseph Bracco and others
Cause Of Action: Racketeering (RICO) Act
Matthews et al. v. Black Elk Energy Offshore Operations, LLC et al. We have downloadable decisions or orders for this case

Filed: March 9, 2016 as 4:2016cv00611
Plaintiff: Thomas G. Andrus , WHITE MARLIN ENERGY SERVICES, INC. , Guy E Matthews and others
Defendant: Black Elk Energy Offshore Operations, L.L.C. , John G. Hoffman, IRON ISLAND TECHNOLOGIES INC. and others
Cause Of Action: R&R re motions to remand (non-core)
Matthews et al. v. Black Elk Energy Offshore Operations, LLC et al.

Filed: November 30, 2015 as 1:2015cv09362
Plaintiff: Thomas G. Andrus , White Marlin Energy Services, Inc. , Guy E. Matthews and others
Defendant: Black Elk Energy Offshore Operations, LLC , John G. Hoffman, Iron Island Technologies Inc. and others
Cause Of Action: R&R re motions to remand (non-core)
Bank of Montreal v. Optionable, Inc.

Filed: March 18, 2014 as 14-860
Plaintiff-Counter-Defendant – Appellee: Bank of Montreal
Defendant: Optionable, Inc., MF Global Inc., Edward J. O’Connor and others
Defendant – Appellant: Kevin P. Cassidy
Kalter et al v. Fireman’s Fund Insurance Company

Filed: August 22, 2013 as 1:2013cv23029
Plaintiff: Mark Nordlicht , Dahlia Kalter
Defendant: Fireman’s Fund Insurance Company
Cause Of Action: Diversity-Notice of Removal
Shutts & Bowen LLP v. Regent Capital Partners, LLC et al

Filed: March 20, 2012 as 1:2012cv21116
Plaintiff: Shutts & Bowen LLP
Defendant: Regent Capital Partners, LLC, Laura Huberfeld, Murray Huberfeld and others
Cause Of Action: Diversity-Breach of Contract
Stettin v. Regents Capital Partners, LLC et al We have downloadable decisions or orders for this case

Filed: December 8, 2011 as 0:2011cv62612
Defendant: Murray Huberfeld, Naomi Bodner, David Bodner and others
Plaintiff: Herbert Stettin
Cause Of Action: Motion for Withdrawal of Reference
Stettin v. Regents Capital Partners, LLC et al

Filed: December 8, 2011 as 0:2011bk00061
Defendant: Regents Capital Partners, LLC, Laura Huberfeld, Murray Huberfeld and others
Plaintiff: Herbert Stettin
Cause Of Action: Motion for Withdrawal of Reference
Discala v. Nordlicht et al

Filed: November 10, 2011 as 9:2011cv81253
Defendant: Platinum Partners, Ari L. Glass, David Bodner and others
Plaintiff: Abraxas J. Discala
Cause Of Action: Diversity-Libel, Assault, Slander
Bank of Montreal v. Optionable, Inc. et al

Filed: August 28, 2009 as 1:2009cv07557
Plaintiff: Bank of Montreal, Bank of Montreal, Bank of Montreal
Defendant: Optionable, Inc., MF Global Inc., Kevin P. Cassidy and others
Cause Of Action: Diversity-Fraud
CMEG Nymex Inc. v. Optionable, Inc. et al

Filed: April 10, 2009 as 1:2009cv03677
Plaintiff: CMEG Nymex Inc.
Defendant: Optionable, Inc., Kevin Cassidy, Pierpoint Capital, Inc. and others
Cause Of Action: Securities Exchange Act
Bock v. Optionable Inc. et al

Filed: June 22, 2007 as 1:2007cv05948
Plaintiff: Stanley T. Bock, Stanley T. Bock, Stanley T. Bock
Defendant: Optionable Inc., Kevin Cassidy, Mark Nordlicht and others
Cause Of Action: Securities Exchange Act
Glaubach v. Optionable Inc. et al

Filed: May 24, 2007 as 1:2007cv04085
Plaintiff: Jonathan Glaubach, Jonathan Glaubach, Jonathan Glaubach and others
Defendant: Optionable Inc., Kevin Cassidy, Mark Nordlicht and others
Cause Of Action: Securities Exchange Act
Peters et al v. Optionable, Inc. et al

Filed: May 17, 2007 as 1:2007cv03877
Plaintiff: Edward Peters, Edward Peters
Defendant: Optionable, Inc., Mark Nordlicht, Kevin P. Cassidy and others
Cause Of Action: Securities Exchange Act
Manowitz v. Optionable Inc. et al

Filed: May 17, 2007 as 7:2007cv03884
Plaintiff: Gerald Manowitz, Gerald Manowitz
Defendant: Optionable Inc., Kevin Cassidy, Edward J. O’Conner and others
Cause Of Action: Securities Exchange Act
Fleiss v. Optionable Inc. et al

Filed: May 11, 2007 as 1:2007cv03753
Plaintiff: Alexander Fleiss, Alexander Fleiss
Defendant: Optionable Inc., Mark Nordlicht, Kevin Cassidy and others
Cause Of Action: Securities Fraud

Platinum and Black Elk – an Explosive Combination

http://www.reuters.com/article/us-platinumpartners-lawsuit-idUSKBN1481BI

U.S. charges Platinum Partners executives with $1 billion fraud

 

Top executives of New York-based hedge fund manager Platinum Partners were arrested on Monday and charged with running an approximately $1 billion fraud that federal prosecutors said became “like a Ponzi scheme” as its largest investments lost much of their value.

Mark Nordlicht, Platinum’s founding partner and chief investment officer, was arrested at his New Rochelle, New York, as federal prosecutors in Brooklyn accused him and six others of participating in a pair of schemes to defraud investors.

“The charges relating to these two schemes highlight the brazenness and the breadth of the defendants’ lies and deceit,” Brooklyn U.S. Attorney Robert Capers told reporters.

Led by Nordlicht, Platinum, the subject of a Reuters Special Report in April, was known for years for producing exceptionally high returns by taking an usually aggressive approach to investing and fund management. (reut.rs/2h36duU) (reut.rs/1TRovwx)

But a 48-page indictment said since 2012, Nordlicht and four other defendants defrauded investors by overvaluing illiquid assets held by its flagship Platinum Partners Value Arbitrage Fund LP, mostly troubled energy-related investments.

This caused a “severe liquidity crisis” that Platinum at first tried to remedy through high-interest loans between its funds before selectively paying some investors ahead of others, the indictment said.

“So to some extent, there is a Ponzi-esque aspect to this scheme,” Capers said.

Prosecutors said David Levy, Platinum’s co-chief investment officer, and Uri Landesman, the former president of the firm’s signature fund, also participated in the scheme, which prosecutors said allowed Platinum to extract more than $100 million in fees.

Nordlicht, Levy and Jeffrey Shulse, former chief executive officer of Platinum’s majority-owned Black Elk Energy Offshore Operations LLC [BLCELB.UL], also schemed to defraud bondholders of Black Elk, a now-defunct Texas energy company, out of $50 million, prosecutors said.

The indictment said the scheme involved using a group of reinsurance companies called Beechwood, partially controlled by Platinum’s principals, to rig a bond vote and pay the hedge fund manager ahead of creditors.

A Platinum spokesman declined to comment. Nordlicht’s lawyer did not immediately respond to requests for comment. Michael Sommer, Levy’s lawyer, said he looked forward to clearing his client.

Lawyers for the other defendants did not immediately respond to requests for comment.

Founded in 2003, Platinum until this year had more than $1.7 billion under management, with more than 600 investors, authorities said. Its Value Arbitrage fund reported average returns of more than 17 percent from its inception, according to prosecutors.

This year, a series of investigations tied to Platinum came to a head. The firm hired an independent monitor in July to unwind its funds, and a Cayman Islands court in August placed its main offshore funds into liquidation.

Those moves came after the June arrest of Murray Huberfeld, a longtime Platinum associate, on charges in Manhattan federal court that he orchestrated a bribe to the head of the New York City prison guards’ union, Norman Seabrook, to secure a $20 million investment with the firm.

Seabrook pleaded not guilty, as did Huberfeld who was also arrested.

Two weeks later, the FBI and U.S. Postal Inspection Service raided Platinum’s Manhattan offices in a separate fraud investigation that culminated in Monday’s indictment.

Others indicted on Monday include Joseph Sanfilippo, Value Arbitrage’s former chief financial officer; Joseph Mann, a former Platinum marketing employee; and Daniel Small, a Platinum managing director.

The U.S. Securities and Exchange Commission said on Monday that it was seeking a court-appointed receiver for funds managed by Platinum Credit Management, the firm’s second-largest vehicle after Value Arbitrage.

The case is U.S. v. Nordlicht et al, U.S. District Court, Eastern District of New York, No. 16-cr-640.

 

The Platinum Plethora of Indictments –

104175941-2ed1-sa-platinumpartners-i-121916-600x400

US charges hedge fund founder, others with $1 billion fraud

http://www.cnbc.com/2016/12/19/us-prosecutors-charge-platinum-partners-ceo-nordlicht-and-six-others-with-securities-fraud.html

Top executives of New York-based hedge fund manager Platinum Partners were arrested on Monday and charged with running an approximately $1 billion fraud that federal prosecutors said became “like a Ponzi scheme” as its largest investments lost much of their value.

Platinum, led by Mark Nordlicht, for years was known for producing exceptionally high and consistent returns by taking an usually aggressive approach to investing and fund management, as outlined by a Reuters Special Report in April.

“As alleged, Nordlicht and his cohorts engaged in one of the largest and most brazen investment frauds perpetrated on the investing public,” Brooklyn-based U.S. Attorney Robert Capers said in a statement. The charges detailed schemes that included exaggerating the value of their investments, paying some clients ahead of others and rigging a bond vote in their favor.

 

Nordlicht, Platinum’s 48-year-old founding partner and chief investment officer, was arrested at his New Rochelle, New York, home on charges listed in an indictment filed in federal court in Brooklyn.

Others arrested included David Levy, 31, Platinum’s co-chief investment officer, and Uri Landesman, 55, the former president of the firm’s signature fund, said Federal Bureau of Investigation spokeswoman Adrienne Senatore.

Platinum is already liquidating its hedge funds, two of which have received bankruptcy protection. The firm and some of its executives also face lawsuits accusing them of stealing money or intellectual property from companies they invested in.

A fatal explosion on a Black Elk oil platform in the Gulf of Mexico, pictured here soon after the blast, helped push the company into bankruptcy, but not before major asset sales that benefited Platinum Partners ahead of creditors.

Sean Gardner | Reuters
A fatal explosion on a Black Elk oil platform in the Gulf of Mexico, pictured here soon after the blast, helped push the company into bankruptcy, but not before major asset sales that benefited Platinum Partners ahead of creditors.

The nearly 50-page indictment on Monday said that since 2012, Nordlicht, Levy and Landesman schemed to defraud investors by overvaluing illiquid assets held by its flagship Platinum Partners Value Arbitrage Fund LP, mostly energy-related investments hit by the dramatic decline in oil prices.

This caused a “severe liquidity crisis” that Platinum at first tried to remedy through high-interest loans between its funds before selectively paying some investors ahead of others, the indictment said.

Nordlicht, Levy and Jeffrey Shulse, former chief executive officer of Platinum’s majority-owned Black Elk Energy Offshore Operations, also defrauded the Texas energy company’s bondholders, the indictment said.

Black Elk is now defunct. A remaining litigation trust is attempting to claw back money from Platinum and its executives over a scheme, described in the U.S. Department of Justice charges on Monday and by Reuters in April, that used the Beechwood group of reinsurance companies to rig a bond vote and pay the hedge fund manager ahead of creditors.

A Platinum spokesman declined to comment. Nordlicht’s lawyer and a Beechwood spokesman did not immediately respond to requests for comment.

Michael Sommer, Levy’s lawyer, said he looked forward to clearing his client’s “good name.”

Lawyers for Shulse and the other defendants could not be immediately identified.

Founded in 2003, Platinum until this year had more than $1.7 billion under management, the indictment said. The Value Arbitrage fund reported average returns of more than 17 percent from its inception, according to prosecutors.

But this year, a series of investigations tied to Platinum came to a head. This led the firm to hire an independent monitor in July to unwind its funds, and a Cayman Islands court in August placed its main offshore funds into liquidation.

Those moves came after the June arrest of Murray Huberfeld, a Platinum associate who prosecutors say was a founder, on charges in Manhattan federal court that he orchestrated a bribe to the head of the New York City prison guards’ union, Norman Seabrook, to secure a $20 million investment with the firm. Both have pleaded not guilty.

Two weeks later, the FBI and U.S. Postal Inspection Service raided Platinum’s Manhattan offices in a separate fraud investigation that culminated in Monday’s indictment.

Others indicted on Monday include Joseph Sanfilippo, Value Arbitrage’s former chief financial officer; Joseph Mann, a former Platinum marketing employee; and Daniel Small, a Platinum managing director.

The U.S. Securities and Exchange Commission said on Monday that it was seeking a court-appointed receiver for funds managed by Platinum Credit Management, the firm’s second-largest vehicle after Value Arbitrage.

The case is U.S. v. Nordlicht et al, U.S. District Court, Eastern District of New York, No. 16-cr-640.

A Platinum Collection of Indictments -Who Said We Were Wrong???

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)

Black Elk, US Probe – Platinum Partners

File photo of rescue crews surrounding Black Elk oil platform in the Gulf of Mexico

U.S. probes hit defunct energy co linked to Platinum Partners

http://www.reuters.com/article/us-hedgefunds-platinum-idUSKBN13O29Y?

At least four U.S. agencies are investigating former officials of a now-bankrupt oil and gas company once majority owned by troubled hedge fund manager Platinum Partners, according to a legal filing submitted last week.

In a motion filed with federal bankruptcy court on Nov. 23, a group of 10 directors, officers and employees of Black Elk Energy Offshore Operations LLC [BLCELB.UL] said an undisclosed number of them had incurred costs from investigations by the U.S. Attorney’s office in Brooklyn, New York, the U.S. Securities and Exchange Commission, the Internal Revenue Service, and the U.S. Postal Service.

The men, some of whom have close ties to Mark Nordlicht’s Platinum, filed the motion to request that Black Elk’s insurance policies cover costs related to those investigations and potential settlements, in addition to lawsuits and claims by the Black Elk litigation trustee and others.

The Black Elk investigations are happening in tandem with U.S. federal probes into Platinum.

Spokespersons for the Department of Justice, SEC, USPS and IRS declined to comment or did not respond to emails seeking confirmation that the investigations are linked. A spokesman for Platinum declined to comment.

In June, the hedge fund’s New York headquarters were raided by agents from the Federal Bureau of Investigation and the U.S. Postal Inspection Service as part of a Department of Justice (DOJ) probe.

Platinum later decided to liquidate its main hedge funds under the supervision of a professional monitor amid pressure from the DOJ’s investigation, a similar probe from the SEC, and the earlier arrest of a longtime associate on separate criminal corruption charges.

Since then, Platinum’s main offshore hedge fund has received U.S. bankruptcy protection as Cayman Islands-based liquidators work to recover money and sell off its assets on behalf of creditors.

 

To read the article in its entirety click here.