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]
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.
Platinum Partners’ Founder And Chief Investment Officer Among Five Indicted In A $1 Billion Investment FraudTwo 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).
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.
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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.
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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.
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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.
Residence: New Rochelle, New York
Residence: New York, New York
Residence: New Rochelle, New York
Residence: Freehold, New Jersey
Residence: Brooklyn, New York
Residence: New York, New York
Residence: Houston, Texas
E.D.N.Y. Docket No. 16-CR-640 (DLI)
 The charges announced today are allegations, and the defendants are presumed innocent unless and until proven guilty.Topic(s):Financial FraudSecurities, Commodities, & Investment FraudStopFraudComponent(s):
Updated December 19, 2016