Bernie Madoff claims he tried to tell people as early as 2005 — three years before he was arrested — that his empire was nothing more than an elaborate pyramid scheme, according to a new documentary.
Makers of the audio documentary “Ponzi Supernova” obtained a 2012 tape recording of Madoff answering questions in a lawsuit filed by plaintiffs suing Banco Santander’s Optimal Investment Services, which had invested with him.
Madoff said investors came to him with suspicions that he wasn’t really making any profitable trades.
But when he told them the truth, they laughed it off — and didn’t go to authorities, the imprisoned cheat said.
“Well they [suspicious investors in 2005] would, they would ask me that, you know, with a smile, ‘You’re not — are you really doing these trades?’ or ‘You know, and so on and so forth?’ ” Madoff testified in a 2012 deposition.
“And sometimes, I would say, ‘No, I’m not [making any trades].’ They would laugh, and then that would be the end of it. They didn’t want to believe it.”
Madoff’s claim that he was trying to come clean years ago is featured in the sixth and final part of “Ponzi Supernova,” which is being posted Thursday on Amazon’s spoken-word platform, Audible.
Madoff also claimed hedge-fund managers who invested with him should have known the returns they were seeing were mathematically impossible.
“Something Fishy” is the title of Thursday’s installment of “Ponzi Supernova.”
“I thought they didn’t want to understand. I thought that was . . . willful blindness,” said Madoff, who is now 78.
As long as he kept reporting profits, hedge-fund managers didn’t care to ask questions, Madoff said, “because they never, they never really objected.”
“Supernova” documentarian Steve Fishman said he agreed with Madoff that the con man’s biggest investors likely knew something was up — but stopped short of acting as long as paper profits kept piling up.
“They ignored all the warning signs. And those warning signs were really explicit and big,” Fishman said Wednesday.
To read the article in its entirety click here.
Unbelievable description of the Platinum fraud.
The fall of Black Elk Energy began in New York City nearly a decade ago, with a meeting, a handshake and a loan.
Looking back, those were halcyon days for John Hoffman, founder of the Houston oil and gas company – before an explosion tore through an offshore rig and killed three workers, before federal investigators accused the hedge fund that made the loan of bilking investors, and before one of his top executives turned on him.
Hoffman, forced out of Black Elk in 2014, is now at the helm of a new company, and barely keeping the doors open. Black Elk is bankrupt and facing criminal charges in a federal case awaiting trial. And Hoffman’s one-time backer, Platinum Partners, is under federal indictment, accused of pillaging Black Elk and the hedge fund’s investors.
Last month, federal investigators arrested six Platinum executives and the man who replaced Hoffman as CEO, alleging they overvalued Black Elk’s assets, concealed “severe cash flow problems,” extracted high management fees and illegally diverted to Platinum more than $95 million owed to creditors holding Black Elk’s bonds. Platinum attorneys did not return calls seeking comment.
“I didn’t think (Platinum) had the guts to take it all,” Hoffman said in an interview. “I thought they’d take a large share. Ends up they took it all.”
The rise and fall of Black Elk Energy highlights the risks of the oil and gas business, which demands piles of cash that can quickly vanish through bad luck, bad planning, bad management or all three. It also reveals a shadow banking system that lends at double-digit interest rates to firms desperate for capital and has few qualms about gutting companies when they don’t perform.
BLACK ELK TIMELINE
2003 Investment manager Mark Nordlicht starts the hedge fund Platinum Partners in New York.
2007 Engineer John Hoffman and a partner open Black Elk Energy in Houston.
2008 Hoffman and partner fly to New York looking for capital; meet Platinum executives.
2009 Black Elk buys 35 oil fields on 71,000 acres from the Houston company W&T Offshore for $30 million, the first major purchase of many to come.
2011 Black Elk ends year with 240 oil production platforms in the Gulf of Mexico on 300,000 acres, producing about 14,500 barrels of oil and gas per day.
2012 Workers welding on a company platform in the Gulf ignite fuel vapors, leading to a string of exploding tanks and killing three.
2013 Black Elk signs drilling contracts worth about $90 million, but Platinum reneges on promises to send capital and Black Elk can’t pay the contractors.
2014 Renaissance Offshore, a Houston production company, buys Black Elk oil fields for $170 million; Platinum engineers a bondholders vote, federal investigators say, that diverts $95 million in proceeds to Platinum rather than contractors and bondholders.
2015 Federal prosecutors file involuntary manslaughter and other charges stemming from the Gulf explosion against Black Elk and contractor Grand Isle Shipyards. Black Elk files for bankruptcy.
2016 The U.S. attorney of the Eastern District of New York announces the indictment of six Platinum executives and one Black Elk executive, alleging they overvalued Black Elk assets, concealed “severe cash flow problems,” extracted high management fees and illegally diverted to Platinum money owed to bondholders.
Hoffman now says he had no idea of the financial disaster he was walking into when he flew from Houston to New York in 2008 and made a deal with Platinum. He thought he had found a deep-pocketed partner to fuel his vision for Black Elk at a time when loans were hard to come by. Even after disaster struck an offshore rig in the Gulf of Mexico, Platinum seemed to have the money and confidence to right Black Elk and put it back on a path to success.
But one day in 2014, Hoffman got suspicious pretty quickly.
Knocking on doors
The following account is based on interviews, financial filings and court records in civil and criminal cases:
Hoffman started Black Elk in 2007, raising money from private investors and using the cash to buy shallow-water oil fields in the Gulf for bottom-barrel prices from companies that no longer wanted them. Black Elk reworked the old wells with updated technology and boosted production.
Not a year later, the U.S. economy crashed, and oil prices with it. In late 2008, Hoffman and co-founder James Hagemeier flew to New York City to nail down capital. Over the course of two months, they knocked on the doors of at least 50 investment firms.
“It was a tough time to look for funds,” Hoffman said.
Finally, a middleman suggested the two meet the executives of the New York hedge fund Platinum Partners.
Platinum was founded in 2003 by Mark Nordlicht, who started as a young trader in the pits of the New York Cotton Exchange and opened two other investment firms before Platinum. He and Platinum gained a reputation for investing in risky companies and returning double-digit profits for investors.
Platinum offered Black Elk two loans together worth about $50 million – at 20 percent interest. But Platinum’s business model didn’t just loan money to desperate companies. The loans came with “kickers,” or clauses that gave Platinum growing ownership stakes in the firms over the lives of the loans.
“We were new and so small,” Hoffman recalled. “We didn’t draw much interest from the bigger players. Platinum seemed like a good fit.”
In 2009, Black Elk began a buying spree with Platinum’s cash, later supplemented by $150 million raised in a bond sale. By 2011, it owned leases on 300,000 acres in the Gulf of Mexico that produced about 14,500 barrels of oil and gas per day, according to securities filings.
“All I know was when we had an acquisition, Mark Nordlicht said, ‘Don’t worry about it,’ ” Hoffman said. “And he always had the money.”
By 2012, Black Elk, with a market value that Platinum estimated at nearly $300 million, was the largest asset in Platinum’s most successful fund, then valued at $700 million. Then it all unraveled.
In November 2012, workers welding on a Black Elk platform ignited fuel vapors, leading to a string of exploding tanks. The explosion killed three workers, injured at least two others and spilled hundreds of gallons of oil into the Gulf.
The fall out was immediate for Black Elk’s finances. Oil production fell. Legal fees mounted. (In 2015, federal prosecutors filed involuntary manslaughter and other criminal charges against Black Elk and contractor Grand Isle Shipyards, which both pleaded not guilty. Hoffman was not charged individually.)
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Black Elk’s lenders reduced lines of credit and demanded more collateral. Black Elk started selling assets to raise cash.
Still, in December 2012, Hoffman flew to New York to present Black Elk’s growth strategy to Nordlicht and another Platinum executive, David Levy. Platinum promised as much as $120 million in capital for the company’s 2013 drilling campaign, Hoffman said, and Black Elk signed drilling contracts worth about $90 million with energy services companies.
Four months later, Platinum reneged on its pledge, leaving Black Elk unable to pay the contractors.
“It was just such a deep hole,” Hoffman said. “We couldn’t dig out of it.”
‘This is code red’
By the start of 2014, Black Elk had a new chief financial officer, Jeffrey Shulse, a lawyer and accountant whom Hoffman had hired a few years earlier to run a well-plugging company created by Black Elk. Platinum pushed Hoffman hard to make Shulse the CFO of Black Elk, Hoffman said.
Shulse wanted Hoffman out of the company. He wouldn’t comment for this story but said in a court deposition that Black Elk was ineptly managed, spending money it didn’t have on luxuries like boats, helicopters and cigar rooms at the office. Hoffman began secretly tracking and reading Shulse’s every email, Shulse said in the deposition; Shulse hired investigators to see if Hoffman had bugged his office.
Black Elk was by then effectively insolvent, federal investigators said.
Platinum, however, owned a $98 million stake in Black Elk, about 76 percent of the company, according to Hoffman’s files. And Platinum had a plan to get as much money back from the sinking oil company. It ordered Shulse to find a buyer willing to pay $170 million for Black Elk’s seven most valuable oil fields.
Shulse, meanwhile, was secretly trying to get Hoffman’s job. In March 2014, Shulse sent an email to Levy asking to take over as Black Elk CEO – and, according to the indictment, get paid $1 million from sales of the Black Elk’s assets.
“I want to be aligned with Platinum and friends of Platinum,” Shulse wrote in an email seized by investigators. “What’s good for them is good for me.”
Shulse found a buyer, the Houston production company Renaissance Offshore, for the Black Elk holdings. But Platinum still had a problem. The terms of Black Elk’s bonds required the company to pay off bondholders before it did anything else with the money.
Platinum was having its own problems. No longer generating double-digit returns, investors were pulling out money, and Platinum was barely able to pay redemption requests to investors, according to the indictment. Failure to cash in on Black Elk assets would “be the end of the fund,” Nordlicht wrote in an email. “This is code red,” he later said.
By May 2014, Platinum executives decided they had to persuade bondholders to let Black Elk use the sale proceeds for other purposes than paying off the bonds. And that change required a vote of the bondholders.
Hoffman didn’t like the move. But he didn’t oppose it, either. What bondholder “with half a brain,” Hoffman thought, would agree to give up his rights?
Platinum, again, had it figured out. It began buying Black Elk bonds – so that it could vote to pay itself, according to the indictment.
Platinum executives leaked information about Black Elk’s finances, driving down the value of the bonds, which they then bought at healthy discounts, federal prosecutors alleged. By April 2014, Platinum owned $99 million of the original $150 million in bonds, but concealed its ownership, investigators said, by selling all but $18 million to four investment funds that Platinum controlled.
With Platinum and its entities holding most of the bonds, the proposal to spend the cash from the oil field sales as the company saw fit was easily approved.
Ripping TVs off walls
On Aug. 18, 2014, Platinum sent an email to Shulse directing him to wire $70 million to Platinum. Two days later, Black Elk sent another $25 million from the Renaissance sales to Platinum.
The next Monday, Hoffman showed up at Black Elk. The doors were locked and office vacated, he said, and he had to call the building superintendent to get in. What was left of the company had moved in with Shulse’s well service company, which was by then also controlled by Platinum.
Not a week later, Shulse, now CEO, held something of a yard sale in the old office. Afterwards, former Black Elk employees said they went back inside the building. Computers, refrigerators and office furniture were all gone. Trash littered the floor. TVs yanked out of the walls, mounts and all, left fist-sized holes in the drywall.
“What a disgraceful way to go out,” Hoffman said.
By then, Black Elk had laid off about 100 workers, most of its staff.
On Sept. 11, 2014, Platinum authorized Shulse to pay himself a $275,000 bonus. Platinum executives, meanwhile, were paying themselves as well, according to the indictment. From 2012 to 2015, even as Black Elk crashed and Platinum scraped for cash, executives consistently told investors the fund was returning double-digit profits, justifying charges of as much as 20 percent in management and incentive fees, or $111 million in total over the four years, federal authorities alleged.
Many of Black Elk’s contractors were never paid. In August 2015, some filed a petition to liquidate Black Elk through Chapter 7 bankruptcy and use the proceeds to pay creditors. By the following June, Platinum didn’t have enough cash to pay investors trying to pull their money out the Platinum fund.
On Dec. 19, the U.S. Attorney of the Eastern District of New York announced the indictment of seven on fraud and conspiracy charges: Platinum executives Uri Landesman, Joseph Sanfilippo, Joseph Mann, Daniel Small, Levy and Nordlicht as well as Shulse. They all pleaded not guilty.
U.S. Attorney Robert L. Capers, whose office investigated the case, estimated that investors in Platinum’s fund lost $1 billion.
Shulse’s attorney, F. Andino Reynal, said Shulse was told what to do by Platinum.
“He didn’t commit a crime here,” Reynal said. “I’m very confident that once the jury has heard all the facts, they’ll determine he’s not guilty.”
Hoffman’s hands still shake when talking about Platinum. His cheeks still redden. The scandal has hamstrung his new company, P3 Petroleum, which can’t raise money to grow. The company pumps about 50 barrels a day and employs seven workers.
“We’ve been going at it for more than two years now,” Hoffman said. “We don’t have a lot to show for it.”
PLATINUM PARTNERS AND THEIR OUTRAGEOUS RETURNS
LostMessiah 4 January 2016
LostMessiah was and has been the brainchild of several people who began this venture last February with a few stories already in our heads, Platinum being front and center.
From the very beginning we made clear that something was very wrong with Platinum, beginning with the extraordinary, though irrational returns. We then raised the question of David Bodner and a piece of property (191 Viola Road) that transferred names rather nefariously in Rockland County, New York.
We questioned the Africa-Israel connection and most notably those who financed Platinum in its early years: David Bodner and Murray Huberfeld and their band of merry… Philanthropists? No.
We posted diagrams.
We showed you the connections between Seabrook and Platinum, COBA and Platinum. We even spoke of Black Elk, a story still in its making. We believe that most of the Platinum investor money (which is likely currently in the family trusts of Bodner and Huberfeld and in the yeshivas begun by Nordlicht and his family) belongs to Black Elk investors who were taken for a ride during a tender offer which was specifically intended to drain the company of its assets.
That story is still one to be told but unfortunately 12 pages later, we have found a web of lies and a spider with far more than eight legs and we have not even scratched the surface.
The investor money has not been spent, in our view. It has been funneled. The trick is going to be getting it out from under the various trust laws protecting it. The key to Huberfeld’s participation in all of this beyond his family trusts is his property which has more recently been transferred to his wife in a quit-claim deed.
There were people questioning – just too few listening.
No One Questioned This Hedge Fund’s Madoff-Like Returns
Red flags abounded while hedge fund claimed 17% annual gains
Platinum was embroiled in rogue trades, Florida Ponzi scheme
In the years before Mark Nordlicht was arrested for what’s alleged to be one of the biggest investment frauds since Bernie Madoff’s, U.S. authorities had plenty of reasons to suspect something might have been fishy about his hedge fund, Platinum Partners.
As far back as 2007, Bank of Montreal accused Nordlicht of helping a rogue trader, costing it more than $500 million. Three years later, when the Securities and Exchange Commission was investigating what it called a “scheme to profit from the imminent deaths of terminally ill patients,” the agency discovered that Platinum had funded the deals. And in 2011, a Florida lawyer who confessed to running a $1.2 billion Ponzi scheme testified that Nordlicht, his biggest funder, lied to help him lure new investors.
And then there were the remarkable profits: 17 percent annually on average from 2003 through 2015, with no down years. The returns were almost as smooth as the fake gains that Madoff claimed year after year, as measured by a popular metric called the Sharpe ratio. Continue reading
Nordlicht Was 22 When it All Began…. A Serial “Risk Adjusted” Delivery Man is and Always Will Be a “Risk Adjusted” Delivery Man
This line says it all—
“is a multi-strategy hedge fund seeking to deliver risk adjusted returns uncorrelated to any broader market activity“
A Monster Inc. Pump and Dump? Perhaps Much Ado About Nothing… We Don’t Think So…. The Hudson Group Connection? Platinum???
By: LostMessiah, 29/12/16
Yesterday, in a fluke series of events, one of us noticed that the shares of several companies were behaving irrationally. Among them were the shares of Monster Digital Inc.. At about 1:00pm (EST) Monster Digital, Inc.’s (MSDI) share price had nearly doubled from the morning. Its trading volume was nearly quadrupled. At one point during the day it had gone up 114%. As the day continued, the shares peaked and then began sliding.
There was no news, nothing of any interest that should have logically pushed the shares up as high as they were trading or as low as they landed. http://www.marketwatch.com/investing/stock/msdi
Tweets were going crazy (see below) as were Bloomberg posts, most of which were both perplexed and ecstatic, depending upon what positions were held by the particular “tweeter”. One trader thanked the market for his significant short on the shares of MSDI. Another came right out and said that the company was the perfect target for a “pump and dump”. http://stocktwits.com/symbol/MSDI
Today, the shares are not only down from their open yesterday morning but they have sunk further as of today’s opening. Again there was no news yesterday and no new news today that should have caused this much activity in this particular company.
We decided to dig because this company fits with impeccable clarity the pattern of companies serially targeted by Platinum Partners: an obscure company, tech or oil/energy driven, with a following of tech geeks or oil bigwigs, small, IPO over-valued, followers unsophisticated, etc. etc. We decided to go digging for a Platinum Partners connection.
And we found one.
Of recent notice, on December 5, 2016 Monster Digital, Inc. exhibited new products at the Hudson Group show in Las Vegas. An article in Marketwired on the 9th mentioned the show. The link to the article is listed as follows: http://www.nasdaq.com/press-release/monster-digital-inc-exhibits-new-products-at-hudson-group-show-20161209-00411
As it would happen, the current Chief Marketing Officer of Platinum Partners is also the former Chief Marketing Officer of Hudson Group. The two week span of time between the Hudson Show (wherein Monster exhibited) and yesterday’s market activity is simply too hard to ignore.
We may be wrong. Who knows? This may just be coincidental. We don’t think so. Looks like a duck. Smells like a duck… You know the rest…
In fact, we think that we found the tiniest of threads to link MSDI with Platinum. We have little doubt that there is something far more nefarious lurking. There were other stocks that behaved oddly yesterday and some today. Many of them fit the pattern. We are simply too understaffed to follow all of the breadcrumbs. We are banking on the possibility that by posting this, someone will follow leads where we cannot. Forgive the banking pun…
We hope that people who read this will send along information, watch the newswires and market industry news and tweets. We hope the federal authorities are paying attention.
TWEETS TO FOLLOW:
Platinum Partners, Implant Sciences Shareholders Heats Up
Implant Sciences Corp. shareholders are seeking bankruptcy-court permission to sue funds affiliated with troubled hedge fund Platinum Partners.
The official committee representing Implant Sciences shareholders last week filed papers asking the U.S. Bankruptcy Court in Wilmington, Del., to authorize it to sue DMRJ Group LLC and Monstant Partners LLC on Implant Sciences’ behalf. According to the shareholders, Implant Sciences has “taken no action” to pursue the legal claims it has against the funds.
The shareholders’ request comes in the wake of the recent arrest and indictment of six Platinum executives on charges of investment fraud. The Wall Street Journal has reported that the Platinum funds, which are liquidating, were a big investor in Implant Sciences.
A representative for Implant Sciences declined to comment Tuesday. Attorneys for the Platinum-affiliated funds, DMRJ and Monstant, didn’t immediately respond to requests for comment.
However, in a Monday court filing, the funds’ attorneys said shareholders are “relying on innuendo, misrepresentations and a lot of ‘where there is smoke there must be fire’ type allegations.” One of the funds’ attorneys has said nothing illegal happened between the lenders and Implant Sciences.
The shareholder committee has asked the Delaware bankruptcy court to consider their request to sue at a Jan. 10 hearing.
Brown Rudnick, the law firm representing the committee, has said such a suit could seek damages of at least $50 million.
Shareholders say their efforts to get the lawsuit off the ground have been stymied by “a substantial” number of missing documents and their inability to interview a Platinum executive who has been arrested.
In Monday’s filing, attorneys for DMRJ and Monstant said they had no control over the arrests that caused the delay in providing the requested paperwork and interviews.
Implant Sciences sought bankruptcy protection in October. In late November, shareholders were authorized to conduct an investigation into Platinum’s dealings with Implant Sciences. Earlier this month, Implant Sciences won court approval to sell its assets to L-3 Communications Holdings Inc. for $117.5 million.
If the shareholders successfully pursue litigation, it could boost the payout to creditors and shareholders in Implant Sciences’ chapter 11 case. The equity group wants to dig deeper into Implant Sciences’ primary source of debt, $86 million in bonds issued to a family of funds managed by Platinum and then converted into equity interests.
Based in Wilmington, Mass., Implant Sciences designs, manufactures and sells systems and sensors that detect trace amounts of explosives and drugs, according to court papers. Its customers include the U.S. Transportation Security Administration, the Canadian Air Transport Security Authority and European airports.
Write to Lillian Rizzo at Lillian.Rizzo@wsj.com