Black Elk’s “Rigged” Bond Vote – Orchestrated by Mark Nordlicht and David Levy, the Details

Ex-Black Elk Atty Gives ‘Painful’ Detail On Bond Vote

Law360 (May 31, 2019, 9:44 PM EDT) — A former attorney for defunct energy firm Black Elk walked jurors through a bond vote that the government alleges former executives at Platinum Partners rigged in their favor, with the prosecutor on the case getting into a level of detail that a judge called “painful” on Friday.

Former Black Elk outside counsel W. Robert Shearer gave a second day of direct testimony at the trial where Platinum co-founder Mark Nordlicht and former Platinum co-chief investment officer David Levy are accused of working with others to secretly control the bulk of $150 million in Black Elk bonds ahead of a vote in order to direct millions back to Platinum itself.

Now a partner at Akin Gump Strauss Hauer & Feld LLP, Shearer was at the time at BakerHostetler. While jurors had heard of Nordlicht’s involvement the day before, Friday’s direct testimony was centered mostly on email interactions between Shearer, former Platinum managing director Daniel Small and former Black Elk CEO Jeffrey Shulse. Shulse and Small are scheduled to be tried separately on related charges. The government has not accused Shearer of wrongdoing.

To read the remainder of the article in Law360 by subscription, 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

CNO and Beechwood Re: The Platinum Zeroth’s Law and the Money that Isn’t Created Nor Destroyed, It Just Changes Hands

FINANCIAL ENTROPY, THE THERMODYNAMICS OF PLATINUM PARTNERS’ MONEY AND ZEROTH’S LAW AS IT APPLIES TO THE DIFFERENT STRATEGIES

[To be updated]

Dear Reader:

The notion of entropy in thermodynamics is chaos. The same is true, in very simplified terms, of financial entropy. Investors who manage to understand the chaos of a given set of financial principles are generally the ones who fare the best. Investors who can manipulate the entropy and maneuver it are magicians. Platinum Partners chief strategists were and have always been that, financial magicians. We give them credit.

Understanding how the pieces fit together is key to understanding the magnitude and complexity of the slight of hand of Platinums’ partners. It is like they were counting multiple decks in a casino and doing so flawlessly, until they weren’t.

Platinum Parterns’ connections to Beechwood Re and to CNO were integrally intertwined. Each one was intended to provide Platinum with a more diverse portfolio of investments, though CNO claims there was some distance between itself and Platinum, that Beechwood was an intermediary and they did not know the involvement. It is our contention that Beechwood Re was Platinum’s alter-ego. As to CNO, that is a bit less clear. 

Beechwood Re  was an extremely clever and somewhat macabre strategy for making money. It required that nursing home patients take out insurance policies written to the benefit of the nursing homes and then to die quickly.  The key, as we saw it at the time, was in knowing who would die and when. Sadly, the success of that strategy required the Platinum/Beechwood guys to get that information from someone in the nursing home business willing to either or both of convince the patients to sign over policies and to then share that information outside of the privacy considerations of the patients. We have a idea who it was, an odd connection to President Trump and someone he met in the 80’s and who had an integral understanding of long term care and the associated insurance. As to that story, that’s for another day. 

In 2014, Beechwood Re had obtained significant funding from CNO, a “reinsurer” who was providing insurance on the insurance policies held by Beechwood. The policies being written for CNO were “backstopping” the Beechwood policies. And the CNO policies, it would appear to have been long-term care policies and not necessarily life insurance.

CNO’s problem at the time was that it had underwritten numerous “long-term-care insurance” policies in the 1980’s and the payouts 25-30 years later were far higher than anticipated. In the best of circumstances, they would have made enough money with their own investment strategies on those policies over the 25-30 intervening years that they would not have been struggling. The calculations for an underwriter for long-term care insurance is based in part on actuarial tables and the health of the population. For CNO to have been a lucrative endeavor, they would have had to invest well and people would have needed to drop dead long before they utilized the policies. For the few who manage to live long enough to use the underlying policy for which they have paid a lifetime, the hope of the insurer is that the care required would be less than the money made during the intervening years. What policy underwriters at the time did not consider was the rising costs of healthcare, that people would live longer and spend more time in long term care.

For Beechwood, the relationship with CNO initially provided it with a reputable firm, the sharing of capital and resources and an underlying “good-will”. In addition, CNO had relationships with other banks and other underwriters, as did Beechwood (through the Platinum guys) and as such, the two entities could name drop for the purposes of working together and as a cost-benefit to one another. The two insurance strategies were slightly different. Whether or not CNO knew Beechwood was an arm of Platinum is unclear and in retrospect, they likely would have stuck with Beechwood regardless so long as the money was flowing.

Beechwood has argued that they were not and alter-ego of Platinum and actually they, too were the victims of a the fraud. That is not even a rational argument, particularly given the familial relationships involved. Beechwood was, to simplify the story,  a feeder fund for Platinum and one of its many investment vehicles or arbitrage funds, just an altogether different strategy. 

CNO on the other hand, may have been a victim of Platinum; but we believe it was also a victim of its own poor planning and greed. We also believed that even when they realized they were dealing with Platinum they made a choice to stay in the game. Platinum at the time was coining money. 

But then there’s “Black Elk”. The Black Elk investment strategy was oil. Black Elk had discovered a clever way to drill the remnants of other wells and obtain the smaller amounts of oil at the bottom of old wells. It is akin to trying to get the last drop of cola from a can. If you can figure out how to get all of the drops out of all of the cans and resell  the cola bottled differently, you can make money. That was the theory behind Black Elk. But no matter which way you play it, once the CEO was removed from his position, Black Elk was, in simple terms, another of Platinum’s feeder funds. 

The people involved were ultimately the same:  Moshe Mark Nordlicht, David Levy,  Moshe “Mark” Feuer, Jeffrey Shulse (who has argued his innocence) [https://casetext.com/case/united-states-v-nordlicht-2] Josephe SanFilippo, Scott Taylor [https://dockets.justia.com/docket/new-york/nysdce/1:2018cv12018/507059], Murray Huberfeld and a number of other Platinum Partners’ partners.

There are dozens of people whom we would argue should have been indicted, who were also original owners and/or initial investors in some of these strategies and were either family members or had previous relationships with the main funds’ players. How they have so far managed to remain outside the numerous indictments perplexes us.

Unfortunately for Platinums’ partners, we believe that the partners knew everything. There were no blind, deaf and dumb people playing in this game. There were no secrets amongst the men involved, just as there are no secrets the neighborhood where many of these men lived only blocks from one another. Many of these men were also related to one another, uncles, cousins, brothers. These were people who in large part had worked together before like Oceans 11 and were going to work together again like in Oceans 12 and 13. And, just like in the movies, they were extremely clever.

The strategies were hedged against one another. They could have gone on for years had a perfect storm of evens not occurred: Black Elk has an explosion on one of its rigs killing some of it’s employees, Beechwood being compelled to payout more than anticipated, and outside investors not deciding the funds’ returns were simply too high. 

Had Platinum Partners’ top brass not been so greedy, they would have succeeded in defrauding the financial systems. But, like Zeroth’s law of thermodynamics: “If two systems are each in thermal equilibrium with a third system, they are in thermal equilibrium with each other.” Similarly, Black Elk was an alter-ego of Platinum Partners as was Beechwood Re. They were also an alter ego of one another. How CNO fits into this, it remains to be seen. We can’t discount he possibility that they were also in thermal equilibrium with Platinum.

Beechwood Re

Cayman Islands authorities to wind up Beechwood Re following fraud scandal

29th November 2018

The Grand Court of the Cayman Islands has approved a petition for the winding up of Beechwood Re, a locally domiciled reinsurer that is being sued for fraud in the U.S and has ties to the hedge fund Platinum Partners, which collapsed after a federal investigation last year. Grand Court Justice … Read the full article

Beechwood sold after reputation loss from Platinum Partners scandal

3rd August 2017

Beechwood, a group of reinsurance and asset management companies, has been sold in a last ditch attempt to salvage the firm instead of shutting it down after it suffered reputation loss when hedge fund Platinum Partners collapsed after a federal investigation, Reuters reported. Platinum’s top executives and founder were arrested … Read the full article

 

 

Beechwood Re To Close $590 Million Reinsurance Transaction

Beechwood Re, Ltd. to Reinsure In-Force Long-Term Care Liabilities of CNO Financial Group Subsidiaries


NEWS PROVIDED BY

Beechwood Re, Ltd. 

Feb 12, 2014, 09:56 ET

W YORKFeb. 12, 2014 /PRNewswire/ — Beechwood Re, Ltd., a life reinsurer, announced today that it had executed definitive documents to complete a reinsurance transaction with subsidiaries of CNO Financial Group, Inc. (CNO).

(Logo: http://photos.prnewswire.com/prnh/20140212/NY63663LOGO )

The deal will have CNO’s subsidiaries cede $550 million of statutory reserves and approximately $40 million of other capital associated with closed blocks of long-term care insurance underwritten by Bankers Conseco Life Insurance Company and Washington National Insurance Company.  The reinsurance transaction and associated structures have obtained all required regulatory approvals necessary to proceed.

“We are very pleased to have entered into this agreement with CNO,” said Beechwood Re CEO Mark Feuer.  “These transactions exemplify the creative reinsurance solutions that Beechwood Re has to offer.  We look forward to working with our new partner through a smooth transition and providing them with ongoing reinsurance support.”

Ed Bonach, CEO of CNO said, “Our reinsurance agreements represent a meaningful step forward in addressing our run-off business. We are pleased to have Beechwood Re as our partner in this transaction and look forward to a successful relationship moving forward.”

As a part of the transaction, Bankers Conseco and Washington National will transfer to Beechwood the in-force reserves and liabilities associated with the blocks of business.  The transactions are to be completed on a 100% coinsurance basis, with Beechwood holding reserves and required over-collateralization in trusts, with investment guidelines and periodic true-up provisions.

Fuzion Analytics, of Carmel, Indiana, will provide data analytics and coordination of Third Party Administration services on behalf of Beechwood Re to ensure best-in-class policyholder services following the transition.  Willis Re, a global reinsurance intermediary, was instrumental in the deal, led by Michael Kaster of their Life Solutions Group.

The transaction is expected to be fully consummated by the end of February.

About Beechwood Re, Ltd and Beechwood Bermuda International Ltd.

The Beechwood family of companies includes Beechwood Re, a reinsurer domiciled in Grand Cayman and regulated by the Cayman Islands Monetary Authority (CIMA), and Beechwood Bermuda International Ltd., a licensed long-term insurer located in Hamilton, Bermuda and regulated by the Bermuda Monetary Authority (BMA).  The companies were formed with the belief that there is a shortage in attractive capacity for the life markets, driven by a need for flexibility and creativity in underwriting the life and annuity reinsurance market associated with asset risk.  The Beechwood companies provide life and annuity reinsurance to primary insurance companies in the United States and Internationally.  Beechwood seeks to provide flexibility for companies to manage their balance sheets and risk profiles through a variety of solutions.  Target markets include reinsuring in-force blocks and ongoing quota-shares of fixed and indexed annuities, in addition to in-force, closed blocks of long-term care and long-term disability policies for primary writers.

More information is available by contacting Susan Sweetin, Media Relations at ssweetin@beechwoodreinsurance.comor (212) 260-5050 ext. 204

SOURCE Beechwood Re, Ltd.

Platinum Partners, Nordlicht, CNO Financial Broup, Beechwood Re and… Well… Another Fraud

CNO stuck in nightmare over alleged hedge fund fraud

 

CNO Financial Group’s top executives are a conservative lot who have spent much of the past decade stabilizing and reducing the risk profile of the Carmel-based insurer.

So imagine their surprise when they got caught up in what prosecutors have described as perhaps the biggest fraud since Bernie Madoff.

The saga began in late 2013 with a deal CNO struck to offload exposure to long-term-care insurance policies that had the potential to saddle the company with big losses down the road.

CNO brass say they didn’t know it at the time, but the company’s partner in the transaction, Beechwood Re Ltd., turned out to be intertwined with the New York-based hedge fund Platinum Partners—whose leaders, prosecutors say, were masterminds of a $1 billion investment fraud.

Platinum Partners co-founder Mark Nordlicht and three other executives of the now-defunct hedge fund are currently on trial in Manhattan, but the nightmare won’t end for CNO when the jury issues its verdicts. CNO, which took a $75 million pre-tax charge in 2016 stemming from Platinum-related losses, is mired in lawsuits—both as a plaintiff and as a defendant—that likely will take years more to play out.

A CNO spokeswoman declined to make an executive available to discuss the Platinum fallout. But CNO’s account of what transpired is laid out in a lawsuit the company filed in 2016 that remains pending against Beechwood and its principals.

The suit charges that conspirators used Beechwood as a front to funnel cash into the embattled hedge fund Platinum Partners, which was in dire need of capital.

“Beechwood’s massive and risky investments with Platinum … was the goal of the fraudulent scheme hatched by defendants to bamboozle institutional investors like [CNO] out of their money by tricking them into indirectly investing with Platinum,” the lawsuit alleges.

The defendants steered the case into arbitration last year, over CNO’s objection. CNO says in a regulatory filing that it intends to “vigorously pursue” damages in the arbitration and in court.

Painful chapter

No doubt, CNO officials wish they never had engineered the deal with New York-based Beechwood, which was aimed at offloading the risks associated with a $550 million block of long-term-care insurance.

CNO is among a litany of U.S. insurers zinged by an aggressive push into long-term-care insurance, which covers nursing home and prescription costs, after the policies became popular in the 1980s. Industrywide, insurers found payouts far exceeded projections.

As part of its so-called reinsurance agreement, CNO shifted $550 million into a Beechwood-managed trust, with Beechwood poised to pocket the upside if investments outperformed or claims proved smaller than expected. On the other hand, Beechwood would have to pump in capital if reserves fell below required levels.

Beechwood was a startup, and CNO was its first customer. Nonetheless, CNO deemed it on the up and up, given that its purported founders were reputable industry veterans—former Marsh USA CEO Moshe “Mark” Feuer and Scott Taylor, a former Marsh & McLennan executive who also had helped lead Merrill Lynch’s wealth management division.

But in its lawsuit, CNO alleges the pair conspired with Platinum executives on a secret scheme that used Beechwood as a “piggybank” to prop up and fund the teetering Platinum hedge fund.

The suit says that, while Platinum claimed to rack up outsized returns averaging 17 percent a year from 2003 to 2015, those figures were inflated. In reality, by 2014, Platinum was relying almost entirely on new investments and loans to scrape together the cash needed to pay off investors who redeemed their holdings, according to the complaint.

CNO said it began noticing Platinum-related investments in reports it was getting from Beechwood that year. But when it raised concerns that they were unsuitably risky for an insurer, Beechwood reassured the company that they were appropriate and were accurately valued—assertions CNO says proved to be false.

CNO’s worry turned to alarm in the summer of 2016, after prosecutors charged Platinum Partners co-founder Murray Huberfeld with bribing a union official into investing $20 million in Platinum, and federal agents raided the hedge fund’s offices as part of a fraud probe.

CNO contends in its suit that company insiders went to great lengths to conceal the Beechwood-Platinum connection. When CNO asked about the source of the funds used to capitalize Beechwood, Beechwood refused to say, citing “confidentiality agreements.”

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Black Elk Running – the Litigation and the Attorneys Handling It

 

http://www.businesswire.com/news/home/20161026006916/en/CORRECTING-REPLACING-Top-10-Litigation-Boutique-Smyser-Kaplan

CORRECTING and REPLACING Top-10 Litigation Boutique, Smyser, Kaplan & Veselka, L.L.P., Seeks over $200 Million for Oil and Gas Industry Creditors Defrauded by Embattled Billion-Dollar New York Hedge Fund

CORRECTION…by Smyser, Kaplan & Veselka, L.L.P.
October 26, 2016 08:06 PM Eastern Daylight Time

 

HOUSTON–(BUSINESS WIRE)–Please replace the release with the following corrected version due to multiple revisions.

The corrected release reads:

TOP-10 LITIGATION BOUTIQUE, SMYSER, KAPLAN & VESELKA, L.L.P., SEEKS OVER $200 MILLION FOR OIL AND GAS INDUSTRY CREDITORS DEFRAUDED BY EMBATTLED BILLION-DOLLAR NEW YORK HEDGE FUND

Retired United States Bankruptcy Judge Richard S. Schmidt serves as Trustee of the Black Elk Energy Offshore Operations, LLC Litigation Trust. Judge Schmidt filed an Original Complaint alleging that Platinum Partners Value Arbitrage Fund LP, Platinum Partners Credit Opportunities Master Fund LP, Platinum Partners Liquid Opportunities Master Fund LP, and PPVA Black Elk (Equity) LLC (collectively “Platinum”) is liable for more than $200 million in improperly transferred assets for its use and benefit. See Richard Schmidt, Trustee of The Black Elk Energy Offshore Operations, LLC Litigation Trust vs. Platinum Partners Value Arbitrage Fund LP, et al, Case No. 16-03237, In the United States Bankruptcy Court for the Southern District of Texas, Houston Division.

Contemporaneous with that filing, came an Emergency Application for Preliminary Injunctive Relief in Houston bankruptcy court. In it, the Trustee sought and won an immediate temporary restraining order and subsequently intends to seek a temporary injunction to freeze $97,959,854.79 Platinum fraudulently transferred to itself from Black Elk Energy Offshore Operations, LLC (“Black Elk”).

______________________________

The Black Elk-Platinum relationship began when Platinum aggressively overtook Black Elk by acquiring 85% of the company within three years of its initial investment. Once in control, Platinum stripped Black Elk of its valuable assets, leaving the company without the financial means to repay creditors. Platinum then engaged in shrewd financial maneuvers to route funds obtained from the sale of Black Elk’s assets back to itself. Platinum’s actions ultimately forced Black Elk into involuntary bankruptcy, later converted into a Chapter 11 reorganization and subsequent liquidation.

Although the Complaint details actions Platinum took to Black Elk’s detriment on several transactions, a primary focus in the Emergency Application was on Platinum’s manipulation of the more than $120 million in proceeds from the sale of Black Elk’s best Gulf of Mexico assets. Smyser stated: “Platinum engineered a transfer of more than $97 million to it and for its benefit from the sale of Black Elk’s prime oil and gas assets, a transfer that led to Black Elk’s demise and deprived creditors and oilfield workers of payment for work they’d done. It was an outrageous plundering of a company.”

While Platinum’s main fund has money owed to Black Elk creditors, the Platinum fund itself has now initiated a Chapter 15 bankruptcy. The fund, in liquidation proceedings in the Cayman Islands, has filed a request that the New York bankruptcy court recognize the Cayman liquidation proceedings and enter a stay of U.S. proceedings against the fund’s creditors. Earlier this year, the federal government indicted one of Platinum’s principals, Murray Huberfeld. The Trustee is pleased that the trust could count on the Houston bankruptcy court to freeze Platinum’s funds fraudulently acquired from Black Elk before Platinum could succeed in dissipating them or other creditors obtained them.

_____________________________

Release Versions

 To read the article in its entirety click here.

A Platinum Result – Assets Frozen

 

Fraud_Triangle

Platinum assets frozen on allegations of ‘plundering’ over $200 million

http://www.reuters.com/article/us-hedgefunds-platinum-idUSKCN12R08L

Troubled hedge fund manager Platinum Partners was ordered by a U.S. bankruptcy judge to temporarily freeze approximately $118 million after a lawsuit Wednesday accused it of illegally stripping key assets from a now-collapsed energy company.

The complaint, filed on behalf of a trustee representing creditors of Black Elk Energy Offshore Operations, LLC, alleges that Platinum is liable for more than $200 million in assets it improperly transferred into its various funds from Black Elk, effectively killing the company.

Platinum was able to unfairly profit from Black Elk, according to the suit in Federal bankruptcy court, through a coordinated scheme with Beechwood, a reinsurance business with close ties to Platinum. The two parties allegedly rigged a Black Elk bond vote in 2014 that allowed Platinum to pocket proceeds from a major asset sale, instead of creditors and secured note holders that included AQR Capital Management.

That apparent coordination by Beechwood and Platinum was featured in a Reuters’ investigation published in April.

U.S. bankruptcy judge Marvin Isgur wrote in his order Wednesday that “the allegations … reflect a pattern of fraud and abuse by Platinum” and there is a “reasonable probability that fraud has occurred.”

A spokesman for Platinum, led by Mark Nordlicht, declined to comment. A spokesman for Beechwood, led by Mark Feuer, did not immediately respond to a request for comment.

Houston-based Black Elk entered into bankruptcy in 2015 and is now being dissolved. A litigation trust remains in an effort to repay creditors following what attorney Craig Smyser called an “outrageous plundering” of the company.

Platinum, once a high-performing, $1.35 billion hedge fund manager based in New York, has been in crisis for months.

A longtime associate of the firm was arrested in June, federal regulators are investigating the firm, and its main funds are being liquidated under the supervision of a pair of monitors. Most recently, its flagship hedge fund filed for bankruptcy protection on October 18.

Beechwood also faces pressure from the investments it made in Platinum funds and related companies – including Black Elk – on behalf of insurance companies such as CNO Financial Group Inc and Senior Health Insurance Company of Pennsylvania.

To read the article in its entirety click here.

 

Platinum and Beachwood and Murray…

http://www.beechwood.com/

Mark-Feuer-Web.jpg

 

 

Adviser With Ties to Hedge Fund Platinum Put Client Funds in It

Beechwood Re didn’t inform investment clients of its ties to Platinum Partners, which is now under fraud investigation, when it put them in Platinum-related investments

http://www.wsj.com/articles/adviser-with-ties-to-hedge-fund-platinum-put-client-funds-in-it-1473997753

Two years ago, Senior Health Insurance Co. of Pennsylvania hired an investment adviser that swiftly invested tens of millions of dollars of the insurer’s money with hedge-fund firm Platinum Partners and bought a series of hard-to-sell assets from Platinum’s funds.

What the insurer wasn’t told was that the adviser, Beechwood Re, was more than 40%-owned by family members of Platinum’s co-founders through trusts and by a former Platinum staffer, people familiar with the matter said.

Platinum now is under a federal fraud investigation, and Senior Health Insurance of Pennsylvania, known as SHIP, is working to get rid of many Platinum-related assets, SHIP’s chief executive says.

The CEO of Beechwood, Mark Feuer, said he didn’t tell SHIP and other clients about his firm’s ties to Platinum because the ownership stakes were passive and didn’t come with a management role. A Beechwood spokesman later said the firm “believes in the importance of all appropriate disclosures and at all times has acted in the best of interest of its clients.”

SHIP Chief Executive Brian Wegner said the insurer is investigating Beechwood’s investment procedures to determine their compliance with the firms’ investment agreement. A Beechwood spokesman said anyone with Platinum-related investments “should of course confirm that their interests are appropriately protected.”

As The Wall Street Journal reported in July, Platinum, which specializes in exotic investments such as loans to struggling companies, is being investigated by federal prosecutors in New York. One of its founders, Murray Huberfeld, has pleaded not guilty to conspiracy and wire fraud in connection with an alleged bribe of a union official for investments. Platinum has suspended redemptions from its hedge funds and announced plans to liquidate them. It has said it is cooperating with the investigation.

Platinum’s fund investors have been largely concentrated in a tight-knit group of observant Jewish businesspeople. Exposure to Platinum reached a far wider realm as a result of Beechwood’s having directed insurance-client money into Platinum funds and related investments.

SHIP’s Platinum-linked investments, which have included loans to Platinum itself, exceed the insurer’s shrinking $35 million capital surplus, or assets minus liabilities. A long-term-care insurer, SHIP counts on its investments to help cover the cost of benefits for elderly policyholders.

Both Beechwood and SHIP said investments are supported by independent ratings and backed by collateral. They said Beechwood, not SHIP, would bear the risk on them. SHIP said its capital levels will remain adequate.

Since early 2014, Beechwood has put more than $200 million of client money in Platinum-linked investments, according to public filings and people familiar with the matter.

Beechwood said all transactions related to Platinum since late 2014 have been “in the context of a restructuring away from Platinum,” a process “nearly complete.” It didn’t provide specific details of the restructuring.

Beechwood said in August that transactions with Platinum “represent under 10% of our well-capitalized $2.4 billion business and should be down to under 1% by the end of the year.”

Beechwood was founded in 2013 by two former Merrill Lynch operations executives, Mr. Feuer and Scott Taylor, partly to help insurers invest their cash.

Mr. Feuer had long known some at Platinum, whose executives were active in the same religious community on New York’s Long Island. He and Mr. Huberfeld served at a charity together, and Mr. Feuer’s sister went to the same school as Platinum co-founder Mark Nordlicht, according to people familiar with the matter.

For years, Platinum had little success attracting insurance-company money and considered starting a reinsurer to do so, people familiar with the situation said. It didn’t proceed, but after Messrs. Feuer and Taylor opened Beechwood Re, more than 40% of Beechwood’s equity was held by family-member trusts of Platinum’s founders as well as by a former Platinum employee.

That employee, David Levy, who is a nephew of Mr. Huberfeld, became Beechwood’s first chief investment officer. He later returned to Platinum. Then another Platinum employee became Beechwood’s second chief investment officer in 2015.

In other ties, Beechwood hired family members of Platinum’s owners, and it gave Mr. Huberfeld access to an office at its New York quarters in 2015.

Mr. Feuer said opening Beechwood was his and Mr. Taylor’s own idea, and the Platinum-linked owners were bought out this summer or earlier. He said Beechwood now is owned by himself, Mr. Taylor and an investor he wouldn’t name but who he said has no financial interest in Platinum.

Before family trusts of Mr. Huberfeld and Mr. Nordlicht were bought out, they were kept updated. Less than 10 minutes after Beechwood received word that money for its first transaction had arrived, Beechwood’s founders notified Messrs. Nordlicht and Huberfeld, documents reviewed by the Journal show.

A spokesman for Beechwood, David Goldin, said, “Everyone close to minority investors was notified at the same time.”

The initial Beechwood transaction, in February 2014, was a reinsurance deal with CNO Financial Group Inc. —an insurer from which SHIP was spun out—to manage about $500 million of long-term-care policies.

CNO audited $126 million of that total, it said in a filing last month, and believes “some or all of these assets may bear some connection to Platinum” or to parties with a link to Platinum.

CNO’s stock is down around 10% since then. Fitch Ratings placed CNO on a negative ratings watch, on the risk it could have to cover any Beechwood losses.

CNO declined to comment. Speaking for Beechwood, Mr. Goldin said, “We have no reason to believe there have been or will be any shortfalls in the reinsurance trusts.”

The Platinum-related investments Beechwood chose for clients came in several forms: investments in hedge funds, asset purchases from Platinum and loans to the firm or companies linked to it. One such company was Implant Sciences Corp. , an explosives-detection firm that trades as a penny stock.

In winning SHIP, the Pennsylvania insurer, as a client, Beechwood guaranteed a 5.85% annual return, a steep hurdle at a time of low interest rates.

Beechwood executives said many clients asked it to find investments that could achieve higher returns—one reason it chose Platinum-related investments. Another reason, said Mr. Feuer, was that Beechwood’s first chief investment officer, having come from Platinum, was familiar with its positions.

Mr. Goldin said Beechwood determines valuations for assets, and a third-party firm “separately provides an independent view.”

SHIP hasn’t marked down any of its Platinum-related investments, said its CEO, Mr. Wegner.

In the first quarter, after Platinum’s flagship fund said it wouldn’t immediately be able to meet redemption requests, filings show Beechwood directed about $8 million more of SHIP’s money into Platinum-related investments. In the second quarter, Beechwood directed that around $28 million of such investments be cashed out. Mr. Wegner said SHIP “was not aware of the liquidity issues faced by Platinum” at the time those moves were made.

SHIP, which has more than $2 billion of assets overall, had $57 million invested in or lent to Platinum hedge funds at the end of last year.

To read the Wall Street Journal article in its entirety click here.

 

Beechwood Re says exposure to hedge fund manager Platinum minimal

http://www.reuters.com/article/insurance-beechwood-idUSL1N1AW0MY?type=companyNews

Aug 15 Reinsurer Beechwood Re said in a statement Monday that it was in the process of severing ties to Platinum Partners and that debt linked to the hedge fund manager and its holdings were small.

“There has been no apparent negative impact to these loans that represent a small portion of our portfolio; and we continue to be confident in the strong security, strict covenants and over-collateralization we have in place to protect against future potential downside risk,” Beechwood said.

Beechwood Re has been managing $590 million in assets for CNO Financial, which has come under pressure over Beechwood’s ties to Platinum.

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