Nordlicht and Huberfeld Dumping Properties – if the SEC is going to get it, Let’s Spend it First

NORDLICHT AND HUBERFELD AND THE PROPERTY DUMP – 19.5$ FOR THE TAKING… SEC…?

PLATINUM’S PARTNERS ARE AT IT AGAIN, DUMPING PROPERTIES…

It is no secret that we feel that Huberfeld and Nordlicht and their “Platinum Partners” were serial schemers. They have, over a long and sordid history, increased their individual and collective wealth through a series of well-played investments in the stupidity or naivete of their victims. We have to give them credit… manipulating markets at well as you manipulate people and then enshrouding it all in a reputation of “Philanthropy.”

In the latest of twits and turns, they are dumping properties. Were we to be the rainmakers at the SEC and the IRS, we would be freezing these properties so they cannot be sold. Unfortunately, we are mere mortals and do not have the appropriate clout. But we are hoping perhaps someone is reading.

Between West 85th Street & West 86th Street   |    Riverside Dr./West End Ave. 

For More InformationAre you ready to tour 535 West End Avenue?Contact

Key Details

  • Condominium
  • Built in 2009
  • 29 Apartments
  • 20 Floors
$2,293

APARTMENTS FOR SALE –

There are a pair of 535 West End Avenue apartments in New York City up for sale by Huberfeld and Nordlicht:

The apartments are #10 and #15:
https://www.cityrealty.com/nyc/riverside-dr-west-end-ave/535-west-end-avenue/6164

The first apartment is owned by Laura Huberfeld — Wife of Murry Huberfeld of Platinum Partners and the Seabrook bribery case:
http://www.city-data.com/ny-properties/assessments/Manhattan/W/West-End-Avenue-89.html

The second apartment is owned by Mark Nordlicht of Platinum Partners — but it’s in a holding corp:
http://www.city-data.com/ny-properties/assessments/Manhattan/W/West-End-Avenue-90.html

Other Info
Mark Nordlicht sold his Bal Harbour Condo last year for close to $8M:
https://therealdeal.com/miami/2017/05/22/wife-of-alleged-hedge-fund-fraudster-sells-bal-harbour-condo-for-7-85m/

As of this past December, Mark Nordlicht and other Platinum executives had ‘exhausted’ at least $10 Million on their defense:
https://law.justia.com/cases/new-york/other-courts/2017/2017-ny-slip-op-32728-u.html

Mark Nordlicht just switched to his third (?) set of attorneys, Jose Baez:
https://www.law360.com/articles/1056757/platinum-boss-parts-with-quinn-emanuel-adds-celeb-lawyer

Our speculation:

The legal fees are building up or are anticipated to be very high — hence the need to sell the NY apartments.  As you recall Mark Nordlicht and associates are first facing a Criminal suit from the Federal Government and then following that case, the SEC wants to clawback $100 Million is management fees charged to clients of the failed Platinum Partners hedge fund (https://www.justice.gov/usao-edny/pr/platinum-partners-founder-and-chief-investment-officer-among-five-indicted-1-billion)

Guess it’s better to sell the apartments and spend the money on a legal defense then possibly lose the SEC trial and have the government take it.

Bottom line, a couple of lucky buyers may get a good deal on a high end condo in NYC!

 

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Echo Therapeutics Inc, one in a String of Platinum Decimated Companies…. Answering Some Questions.

The below is an article that was posted in Valuewalk. The author asks some obvious and reasonable questions. Taken in a vacuum, one might wonder. However, when viewed through the looking glass of Platinum corporate savagery, the answers to those questions take on a whole new perspective.

Our comments are in red. – LM

Echo Therapeutics Inc (ECTE) – A Stock With No Revenue And A Short Catalyst

Platinum Partners is the largest investor in Echo Therapeutics (common, warrants, pref and debt). Below is the author’s take on the stock itself, but it raises some bigger questions regarding Platinum such as:

  1. why was platinum (a $1 billion fund) repeatedly investing in such a micro cap stock. Because as part of Platinum’s strategy, Platinum acts as the savior “institutional investor,” proceeds to increase value through name recognition, to take control, divest the company of its most valuable assets and equity and then to tank the stock and leave nothing for investors. Most likely in bankruptcy, Platinum repurchases the company at a substantial discount or holds onto the assets and sells them.
  2. How did Platinum value its investment in the warrants and preferred as there is no “market” for these illiquid investments. The value is an arbitrary number intended to guide other investors who view Platinum’s investment as a benchmark. As you know there were some questions about how Platinum valued some of its other investments. See Black Elk and Optionable, Echo Therapeutics and dozens if not hundreds of others. They all follow the same pattern of setting a benchmark, enticing other investors to increase capital thereby increasing value and then tanking the company by divesting it of its assets through a series of tender offers, mergers, special purpose vehicles or strategic partners. In Echo’s case it was a Chinese partner who made promises of Chinese FDA approval to appear legitimate.
  3. Did Platinum invest in ECTE while at the same time preventing Platinum investors from withdrawing from the fund (aka failing to honor redemption requests). Most likely or they created a class of shares in which they too were investors and then voted one class over the other thereby diluting the equity for the second class. That was followed by removing the value through a series of tenders, mergers, corporate takeovers, strategic partnerships…

Echo Therapeutics Inc (ECTE) – An Overvalued Stock

Echo Therapeutics (ECTE) has no revenue, is losing money, is facing delisting from the Nasdaq exchange, needs capital, recently filed a shelf offering (very late in the day on a Friday!) and faces competition from much larger industry competitors. According to the latest 10Q, the company had only $42k of unrestricted cash (not much cushion for a company that burns over $1mm per quarter) yet boasts an equity market cap of almost $35 million (using the 20 million shares, which includes convert pref,…most data sources like yahoo and Bloomberg use only 11 million shares outstanding). The company also expects to have negative cash flows for the foreseeable future as it funds its operating losses and capital expenditures. Echo Therapeutics is up 25% YTD and up 100% from its 52 week low. This was not the case initially. The software had value. The company was a Platinum target from start to finish.

To make it an even more attractive short candidate, consider that its largest shareholder is Platinum Partners, the fund that one of its executives has been accused of paying bribes to a union boss in exchange for an investment and the same fund that yesterday the FBI raided on reportedly as part of an investigation into Platinum’s valuation of its hard to value illiquid assets. It has also been reported that Platinum will be liquidating some or all of its funds (which makes the short even more interesting). Finally, it has been reported that Platinum failed to honor redemption requests from investors and that Platinum has defaulted on a $30 million loan from New Mountain Capital…in other words, Platinum appears to have some very serious problems and their future is uncertain. Platinum Partners gets involved to give the company seeming legitimacy, name recognition, institutional investor interest thereby enticing other investors.

Furthermore, Platinum’s investment (and ECTE’s market cap) are larger than it might initially appear as most of Platinum’s investment is in the form of convertible Preferred stock, so the number of shares outstanding is, theoretically larger than it appears on the cover of the 10q. In addition there are Blockers limiting the number of shares that the preferred can be converted into, so the ownership table in the proxy table understates Platinum’s true ownership, although the footnotes give more accurate information. Precisely why their pattern of corporate savagery works.

Echo Therapeutics is trying to develop a non-invasive (aka no needles), wireless, continuous glucose monitoring system. You can see the latest presentation at http://echotx.com/investors/investor-relations/ . The company has been developing its products for several years now but still has no commercially viable product. It probably doesn’t help that they spend more on SG&A than they do on R&D and that they compete with companies with significantly greater resources. ECTE does talk about getting approval from the Chinese FDA (we have our doubts) and the company does put out press releases on things that we believe are of limited real value. Promises of Chinese FDA approval was a ruse to add seeming legitimacy to its choice of strategic partner, also a Platinum related entity, in China. Meetings were held in China, thereby removing the US entrepreneurs and board members from earshot. To reiterate, the supposed FDA Approval in China was a ruse intended to make the entire scheme appear legitimate, reasonable and even value enhancing.

To avoid delisting from the Nasdaq, by the July 5, 2016 ECTE will need stockholders’ equity above $2.5 million (last quarter it was negative $4.7 million) and to provide projections that it can maintain that amount through June 30, 2017 (remember the company loses money and lost $2.6 million last quarter). ECTE could, theoretically meet the Nasdaq requirements by doing one of 2 things, neither of which would be good for current shareholders: 1) Raise equity through a recently filed (but not yet effective) $25 million shelf, although it is unclear if ECTE has enough time to pursue this option and who would buy the stock or 2) Have Platinum convert some/all of its preferred stock into common stock, although given Platinum’s other problems I’m not sure how focused they are on ECTE at the moment.

In addition to being ECTE’s largest shareholder, Platinum has the right to nominate one director to ECTE’s Board. Platinum’s designee is ECTE’s Chairman, Michael M. Goldberg. Goldberg’s previous biographies indicate he used to work for Platinum. However his employment by Platinum is not mentioned in the bio listed in ECTE’s SEC filings and we wonder why. (Note: Mr. Goldberg is also Board Director for ticker NAVB, another Platinum related company whose stock has cratered recently.) Each and every member of the Platinum team from start to finish is a Platinum person, friend, family member, financial colleague and co-conspirator. This is part of the same Platinum pattern. Platinum Controls all aspects of the entity it takes over. It is carefully planned, reflecting savvy, a clear understanding both of the markets and of investor behavior and a willingness to destroy the most vulnerable, those who began the venture and did not know enough to prevent Platinum from stepping in.

Besides Michael Goldberg, Echo Therapeutics has 2 other non-employee directors, one of whom is Mr. Goldberg’s first cousin. Couldn’t ECTE find a qualified director who was not related to an existing Board member? To be clear, we don’t know either of the Goldbergs nor are we suggesting they have done anything wrong. However, their ties to Platinum (and each other) are red flags for us. They should be huge red flags, warning signs a cause for running in the opposite direction.

Not surprisingly, ECTE has failed to attract much interest from institutional investors. If ECTE is such an interesting investment, why have so many sophisticated investors avoided it? Our opinion is that Platinum owns shares when the company is functioning with moderate returns, dumps those shares into the market, tanking the stock, which serves to make a company appear less financially viable. They then enter as the “legitimate institutional investor” at a lower market price, take over a majority of shares and proceed to acquire control in seemingly legal contracts and transactions then divest the company of its most valuable assets under the guise of  trying to rebuild a company. In reality the entire path from start to finish is a well orchestrated ballet, with a chorus of additional dancers waiting at the sideline to step in and steal the show.

Based on the latest proxy as of April 2016 we estimate Platinum’s investment to consist of 783k common shares, 5.6 mm shares (theorectically convertible from preferred stock) and 2.8 million warrants. Clearly exiting its position will be challenging considering the company needs to sell shares too to raise cash and the trading volume is limited. No surprises. It was orchestrated in similar fashion in EVERY other deal that Platinum has entered (see Objectionable, Black Elk and others).

Echo Therapeutics is an overvalued stock where we believe both insiders and the company will need to sell large numbers of shares and we don’t see how either can occur at these prices. Echo Therapeutics can be saved if the Receiver in Bankruptcy sees the company through the looking glass of Platinum’s involvement and facilitates its recovery by denying Platinum and its partners any involvement.

Ramapo Town Officials SEC Press Release

PRESS RELEASE

 

SEC: Town Officials in New York Hid Financial Troubles From Bond Investors

04/14/2016 11:00 AM EDT

 

“The Securities and Exchange Commission today announced fraud charges against Ramapo, N.Y., its local development corporation, and four town officials who allegedly hid a deteriorating financial situation from their municipal bond investors.

The SEC alleges that Ramapo officials resorted to fraud to hide the strain in the town’s finances caused by the approximately $60 million cost to build a baseball stadium as well as the town’s declining sales and property tax revenues.  They cooked the books of the town’s primary operating fund to falsely depict positive balances between $1.4 million and $4.2 million during a six-year period when the town had actually accumulated balance deficits as high as nearly $14 million.  And because the stadium bonds issued by the Ramapo Local Development Corp. (RLDC) were guaranteed by the town, certain officials also masked an operating revenue shortfall at the RLDC and investors were unaware the town would likely need to subsidize those bond payments and further deplete its general fund.

According to the SEC’s complaint, inflated general fund balances were used in offering materials for 16 municipal bond offerings by Ramapo or the RLDC to investors, who consider the condition of a municipality’s general fund when making investment decisions.  After town supervisor Christopher P. St. Lawrence purposely misled a credit rating agency about the town’s general fund balance before certain bonds were rated, he told other town officials to refinance the short-term debt as fast as possible because “we’re going to all have to be magicians” to realize the purported financial results.

“Retail investors account for more than 75 percent of the $3.7 trillion municipal bond market, which is critical for our nation’s infrastructure and development,” said Andrew J. Ceresney, Director of the SEC Enforcement Division.  “We won’t stand for public officials and employees who resort to alleged accounting trickery to mislead investors who are investing in their financial futures as well as the future betterment of our communities.”

According to the SEC’s complaint:

  • Christopher P. St. Lawrence, who served as RLDC’s president in addition to being town supervisor, masterminded the scheme to artificially inflate the balance of the general fund in financial statements for fiscal years 2009 to 2014.
  • St. Lawrence and Aaron Troodler, a former RLDC executive director and assistant town attorney, concealed from investors that RLDC’s operating revenues were insufficient to cover debt service on bonds to finance the stadium.
  • Town attorney Michael Klein helped conceal outstanding liabilities related to the baseball stadium and repeatedly misled the town’s auditors about the collection of a $3.08 million receivable recorded in the town’s general fund for the sale of a 13.7-acre parcel of land to the RLDC.  But because the title of the property was never transferred from the town to the RLDC, Klein also made misleading statements about the receivable’s source.
  • Troodler helped conceal the fictitious sale and boost the account balance of the town’s general fund by approving RLDC financial statements reflecting a purchase of property that never actually occurred.  Troodler also signed offering documents that contained an additional fabricated receivable totaling $3.66 million for another transfer of land from the town to the RLDC.  The only land transferred from the town to the RLDC during the time of the purported transaction was property donated for the baseball stadium, which St. Lawrence and Troodler knew did not impose any payment obligation on the RLDC.
  • The town’s deputy finance director Nathan Oberman participated in activities to inflate the town’s general fund by arranging $12.4 million in improper transfers from an ambulance fund to bolster the troubled general fund during a six-year period.

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against St. Lawrence and Troodler.

“We allege that Ramapo’s senior-most officials concealed the true condition of the town’s declining finances to avoid further political fallout from the construction of the baseball stadium,” said LeeAnn Ghazil Gaunt, Chief of the SEC Enforcement Division’s Public Finance Abuse Unit, which was previously known as the Municipal Securities and Public Pensions Unit.

The SEC’s complaint charges Ramapo, RLDC, St. Lawrence, Troodler, Klein, and Oberman with violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  St. Lawrence and Troodler also are charged with liability under Section 20(a) of the Exchange Act as controlling persons for the violations by the town and RLDC, and all four town officials are charged with aiding and abetting violations by the town and RLDC.  In addition to financial penalties, the SEC seeks a court order appointing an independent consultant for Ramapo and RLDC to recommend improvements for financial reporting and municipal securities disclosure policies and monitor the mandated implementation of those recommendations for a period of five years.  The SEC also seeks an order prohibiting the town officials from participating in future municipal bond offerings.

The SEC’s continuing investigation is being conducted by Daniel M. Loss and Celeste A. Chase of the New York office and Creighton L. Papier of the Public Finance Abuse Unit with assistance from Jonathan Wilcox, Louis Randazzo and Mark R. Zehner from the Public Finance Abuse Unit.  The SEC’s litigation will be led by Alexander M. Vasilescu and Mr. Loss.  The case is being supervised by Sanjay Wadhwa and Ms. Gaunt.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York, the Federal Bureau of Investigation, and the Rockland County District Attorney’s Office in New York. “

Securities Fraud and Christopher St. Lawrence

 

Ramapo town supervisor, former chief of LDC, charged with securities fraud

April 14, 2016

“NEW YORK – Ramapo Town Supervisor Christopher St. Lawrence and N. Aaron Troodler, the former executive director of the Ramapo Local Development Corporation, were indicted with 22 counts of securities fraud, wire fraud, and conspiracy in connection with municipal bonds issued by the town and by the Rockland LDC.

The indictment was unsealed on Thursday.

US Attorney Preet Bharara said his office has brought what is believed to be the first ever municipal bond-related criminal securities fraud charges against public officials. “As alleged, Christopher St. Lawrence and N. Aaron Troodler kicked truth and transparency to the curb, selling over $150 million of municipal bonds on fabricated financials,” Bharara said. “I doing so, they defrauded both the citizens of Ramapo and thousands of municipal bond investors around the country.”

FBI Assistant Director-in-Charge Diego Rodriguez said the men “allegedly engaged in a complex securities fraud scheme so they could hide public funds being used for the construction of a stadium and other projects.” He said the activity allegedly continued even after they became aware of the town and the corporation tasked with development initiatives were subjects of a federal investigation.””

 

Read full article from midhudsonnews.

THERE’S NOT ENOUGH TIME IN THE DAY TO DISCUSS NORDLICHT, HUBERFELD, BODNER

 

April 14, 2016

BUT HE GIVES LOTS OF CHARITY…

In Rothstein Fiasco, Fraud Begets Fraud

THURSDAY, FEBRUARY 25, 2010

http://www.browardpalmbeach.com/news/in-rothstein-fiasco-fraud-begets-fraud-6444645

“When Scott Rothstein was spending millions in his bid to take over Fort Lauderdale, his many doubters strongly suspected that the money couldn’t possibly be legitimate. And the question heard ’round the city was: Where is this guy getting his money?

There was talk of Russian Mob connections and computer porn. Some suspected the Italian Mafia. Now we know a whole lot of it came from a similarly dubious source, New York hedge funds.

Hedge fund owner George Levin was the key money source, with his Banyon fund pumping hundreds of millions into Rothstein’s scheme. When Rothstein’s Ponzi scheme imploded and he fled to Morocco, Levin held a major meeting of investors at his office across from the Galleria Mall on Sunrise Boulevard.

Many of them, we have since learned, have dubious histories. Levin himself ran a model car company that was hit with a federal fraud conviction. His right-hand man at Banyon, Frank Preve, is a convicted felon. Mel Lifshitz is a disbarred attorney and convicted tax evader. Then you have hedge fund owner Murray Huberfeld, a serial SEC violator whom I wrote about last week.

Now let me introduce you to the reported $50 million man, Meir “Mark” Nordlicht, who has business ties to Huberfeld and who has also been alleged to have been involved in a previous fraud. A big one. Nordlicht, remember, was reportedly present at that meeting of panicked Rothstein investors on November 1.

Nordlicht runs a $500 million New York hedge fund called Platinum Management and, like Huberfeld, put his money into Rothstein’s scheme via loans to Levin’s Banyon fund. Levin told me earlier this week that he was introduced to both

Nordlicht and Huberfeld through a broker and had never done business with them in the past. Levin wouldn’t elaborate further.

To understand Mark Nordlicht, you must first know his father, Jules Nordlicht. Back in 1978, Jules Nordlicht pleaded guilty on a federal charge of conspiracy to create $27 million in fraudulent tax losses through manipulation of market for crude oil futures. It’s not clear what sentence he served, but it is crystal-clear that his criminal conviction didn’t keep him out of the high-flying commodity trading business.

Jules Nordlicht went on to become a major shareholder at the New York Mercantile Exchange (NYMEX), the largest commodity futures exchange in the world. His son, Mark, followed in his footsteps, becoming a wheeler-dealer in the dicey energy futures market.

Mark Nordlicht became chairman of Optionable Inc., a company he founded that had a rather Rothstein-like implosion in 2007 amid allegations of fraud and insider trading. While the company was still flying high in January 2007, Nordlicht and two other executives, including Optionable CEO Kevin Cassidy, sold 10.2 million shares of the company to NYMEX for $29 million. Mark Nordlicht personally accounted for seven million of those shares, which he sold for a whopping $18,830,000.

In May, the wheels fell off of Optionable. It was learned at that time that CEO Cassidy had felony credit card and tax evasion convictions in his past that he didn’t disclose. On top of that, Optionable had a series of dubious dealings with a broker named David Lee at the Bank of Montreal that caused huge losses for the bank. Lee and Cassidy were close friends.

So what happens? NYMEX announced that it would compete with Optionable rather than join it and declared an almost total writedown on its Optionable investment. Optionable stock plunged, and the company was hit with SEC actions and class action lawsuits.

One lawsuit filed against Mark Nordlicht explains the “bogus” relationship NYMEX and Optionable this way: “[A] key reason the unusual NYMEX transaction went forward was the influence of Jules Nordlicht, a NYMEX shareholder with significant holdings and — lo and behold — also an ex-con and the father of Mark Nordlicht. Nordlicht Senior, who had liquidated 2.19 million shares in Optionable’s IPO and therefore had no vested interest in the future of his son’s Company, (except to see thathis son made as much illegal profits as possible), also pleaded guilty to price rigging the crude oil market in 1978.”

Needless to say, Optionable was a major business scandal, and the stock plummeted to a few cents, where it remains today. But Nordlicht has never been named personally in SEC actions, despite the fact that he was chairman of the company when the apparent fraudulent activity occurred. Today, he remains in charge of his $500 million hedge fund that apparently sank $50 million into Rothstein’s scheme.

The Nordlicht family’s connection to fellow Levin/Rothstein investor Huberfeld is clear. They share a New York address, run similar hedge funds, and have invested in the same businesses. In fact, when Huberfeld was subpoenaed in the infamous Solomon Dwek case, it was in connection with his activities with Nordlicht’s Platinum fund. Another interesting observation: The hedge funds of Nordlicht and Huberfeld — which together reportedly control nearly $1 billion — both share names with types of American Express cards.

The question hanging in the air is where have Nordlicht and Huberfeld gotten all that money to invest? Considering their histories, it would seem any sane and rational investor wouldn’t get near either of them. What is the original source of all this crazy money that found its way into Rothstein’s Ponzi and enabled the lawyer to turn Fort Lauderdale on its head?

I’ll close with an observation: The Securities and Exchange Commission is an abject failure of a regulatory agency on par with the Florida Ethics Commission. Unfortunately, the SEC is a whole lot more important to America and the world.”

The Spinka Case, California-New York-Israel, Crime & Fraud

Crime & Punishment?

With the FBI raids in Rockland County, Kiryas Joel, Lakewood/Toms River in 2016, together with the history (2008), which in the Hasidic Jewish community simply repeats itself, one would think this would be “Old Hat” (pre-owned Shtreimel?). But, when will the patterns of the past be applied to the circumstances of today?

If you want to know how to disentangle current events, looking at yesterday provides significant clues. Through the looking glass, that’s a start…

LostMessiah, March 24, 2016 – repost from The Jewish Journal, 2008

cov_zigelman-moshe_011108_450_338_c1

The Spinka money trail—and the informant who brought them down

by Amy Klein
Posted on Jan. 10, 2008 at 7:00 pm

The first snow flutters hesitantly in Brooklyn. Men wearing fur streimel hats and women wearing sheitls walk briskly past the corner of 15th Avenue and 58th Street in Boro Park as if nothing extraordinary has happened here.
And why not? The kosher shops of this self-contained ultra-Orthodox neighborhood — practically a city onto itself — are still a few blocks down, and here on this bleak corner, there are only three orange school buses parked in front of a four-story, dark-red brick building, which sits on a residential street, where tall, narrow houses nearly overlap. The structure (photo below) is rather nondescript and unimposing — garbage bags are piled haphazardly by a front gate, bars protect the windows, young boys can be heard chanting from behind the locked door and a white sign with sky blue Hebrew lettering reads: “Yeshiva Imrei Yosef Spinka.”

A buzzer sounds. The door opens. No one asks who rang the bell. Up the four steps, a reception window sits empty. Hazy yellow fluorescent lights illuminate the narrow hallways adorned with graying yellow paint and frayed industrial carpeting. If there are millions — or even thousands — of dollars going to the Spinka yeshiva, it certainly doesn’t seem like it’s coming here.

This despite the fact that on Dec. 19, 2007, the U.S. Attorney General’s Office filed an indictment in the U.S. District Court for the Central District of California naming the Chasidic yeshiva and four other Spinka organizations, as well as eight people, in a multimillion dollar tax fraud and money-laundering ring that stretched from Brooklyn to Los Angeles to Israel and elsewhere.

Two of those indicted are Rabbi Naftali Tzi Weisz, 59, the Grand Rabbi of Spinka, a Brooklyn-based Chasidic sect, whose yeshiva is in this undistinguished building, and his gabbai (assistant), Moshe Zigelman, 60.

Weisz is just one of a number of Grand Rebbes of Spinka, a Hasidic sect that yaacov zievald originated in Romania in the 19th century. He is the great-great-grandson of the founding rabbi, and one of about a dozen Grand Spinka Rebbes who live in Boro Park or Williamsburg, in Brooklyn, or Bnei Brak and Jerusalem in Israel.

Four Los Angeles men were among those charged with taking part in the scheme: Yaacov (Yankel) Zeivald, 43, a self-described scribe (sofer) from Valley Village (photo, right); Yosef Nachum Naiman, 55, the owner of Shatz Et Naiman, d.b.a. Jerusalem Tours; Alan Jay Friedman, 43, a businessman from Pico-Robertson who sits on the board of the Orthodox Union; and Moshe Lazar, 60, owner of Lazar Diamonds, a Los Angeles jewelry company.
Although many of the details of the case have not yet been revealed — a trial date is set for Feb. 12, but the defendants’ lawyers say it will be postponed at least a year — what is emerging from the indictment, the search warrant and other documents of public record is a complex money-laundering scheme. According to the documents, people donated money to the Spinka institutions but then received 80 percent to 95 percent of their donations back, yet wrote off the full amount on their taxes.

These charges are just the beginning of a much larger case, Daniel J. O’Brien, an assistant U.S. attorney in the major frauds section, based in Los Angeles, said in an interview with The Journal.

“There were many other people that contributed in this fashion that would be the subject of government investigations,” O’Brien said.

While O’Brien said he has documentation that the Spinka institutions took in about $750,000 through the scheme — then writing receipts for $8.7 million — in 2007 alone, the assistant U.S. attorney believes the fraud has been going on for decades: “I believe this goes on beyond living memory,” possibly for generations.

This is certainly not the first time an ultra-Orthodox sect has been accused of attempting to break the laws of the secular government — aramos, or schemes, were perpetrated over the centuries in the shtetls of Europe. In the last decade, arrests have occurred in religious communities in Brooklyn, Lakewood, N.J., and upstate New York.

However, this particular case has shocked Los Angeles’ ultra-Orthodox community, not only because Los Angeles had largely been exempt from such cases in the past, but also because some of the city’s prominent members have been charged as being at the center of the scheme.

As a result, the case has sparked a fierce debate about the type of behavior that is acceptable for observant people and what type of religious community Los Angeles would like to be. But there’s also debate about the laws of a moser, an informant, because one person who was not charged was the primary source of information for the federal case — though he allegedly started out as one of the perpetrators.

THE BEGINNING

On June 29, 2004, the U.S. Securities and Exchange Commission filed civil fraud charges against Robert A. Kasirer and four executives of Heritage Healthcare of America, which sold $131 million in bonds to 1,800 investors in 36 states from 1996-1999, claiming that the money would be used to fund 10 health care facilities. In October of that year, Kasirer approached the federal government and “expressed a desire to plead guilty to criminal charges arising out of the investigation and agreed to reveal other criminal conduct he and others had committed, with a view that any sentence he might receive would be reduced,” according to an affidavit for a search warrant submitted by FBI Special Agent Ryan Heaton on Dec. 18, 2007.

Although the search warrant affidavit identifies Kasirer only as “confidential witness (CW-1)” and the recent grand jury indictment refers to a witness named only as RK, the companies in the affidavit attributed to CW-1 and RK are run by Kasirer, and several members of the Los Angeles community, who asked for confidentiality, have confirmed his involvement.

In 2004, under federal surveillance, the informant identified in the transcript as CW-1 resumed activities he admitted to having conducted with the Spinka since 1990, in which “he caused several million dollars in contributions to be mailed to the tax-exempt organizations operating within the umbrella of Spinka,” he is quoted in federal documents as having told the FBI. As part of the scam, Weisz and Zigelman allegedly would return 80 to 95 percent of Kasirer’s contributions.

On Oct. 31, 2007, the SEC issued a final judgment against Kasirer, ordering him to pay $4,991,434.

“Kasirer consented to the entry of the final judgment without admitting or denying the allegations contained in the commission’s case,” according to the SEC enforcement proceedings.

In the interim, according to the transcripts, Kasirer began to wear a device to record his interactions for the government. On Dec. 20, 2004, he told Zigelman, the Spinka rebbe’s gabbai, that he never intended to pay the SEC.

According to the wiretapped transcripts, Kasirer told Zigelman: “The SEC investigation is done. But they want me to pay them a lot of money.”

“How much?” Zigelman asked.

“Possibly one, one and a half,” Kasirer said.

“Million?” Zigelman asked.

Kasirer confirmed the amount and said he had told the SEC he didn’t have the money. In the transcript, Kasirer then went on to say that he’d lied to the SEC, and that, in fact he had the money but wanted to hide that fact.

“What is SEC?” Zigelman asked.

Kasirer explained, and Zigelman replied, “Yes, yes, but you don’t have to give it to them.”

For the next three years, Kasirer recorded conversations with targets of the government investigation, and, using government funds, conducted a dozen monetary transactions with Zigelman, according to transcripts of conversations conducted in English, Hebrew, Yiddish and Hungarian. The government also tapped the phones of Zigelman and Weisz.

CASH OR CHARGE?

For Kasirer, there were two ways the operation worked: At first he reportedly received his “donations” back in cash, and when he became uncomfortable with the large cash amounts floating around, he set up an Israeli account.

According to the transcripts, Kasirer’s jewish journal cover money was allegedly refunded to him by various men, all now defendants in the case: Naiman, Zeivald, Friedman and Lazar, all of whom have pleaded not guilty to the charges against them.

Among the transactions in the transcripts, for example, was one on Feb. 8, 2007. Kasirer FedEx-ed a check for $20,000 made out to Yeshiva Imrei Yosef to Zigelman. On Feb. 15, 2007, Lazar delivered $18,600 to Kasirer’s house. On Feb. 22, 2007, Kasirer got a letter in the mail on a Yeshiva Imrei Yosef Spinka letterhead thanking Kasirer for his $20,000 donation to a tax-exempt organization, saying the “donation” was entirely tax deductible and Kasirer had received no “goods” or “services” in exchange for the contribution.

The Spinka Yeshiva charged Kasirer up to 7.5 percent for laundering the money, which was a cause for some dispute, according to the wiretaps.

On Dec. 16, 2005, Kasirer told Joseph Roth, an assistant manager at Bank Mizrahi — which is based in Israel but has a branch in Los Angeles — to set up a new account so he could move money internationally.

On Jan. 12, 2006, Tel Aviv lawyer Jacob Kantor — the only one of those named in the indictment who is still at large — is reported in the transcripts offering to Kasirer to create documents to incorporate a company called Bedford Holdings & Investments, which would be “held in confidence by the bank and can only be disclosed after a complicated procedure by the Bank of Israel, if there is evidence that the monies resulted from criminal activities, such as drugs — tax matters are not an issue.” Much like Switzerland, Israel has laws that protect investors, and the country does not investigate monetary origins, even on suspicion of tax fraud.

“So, we wanted to basically set everything up the same way as it was before,” Kasirer told Roth in the affidavit transcripts. Later in the document, he tells Zigelman that Kantor set up a trust in Israel so that nothing would be left in Kasirer’s name in order to hide his money from the SEC. Then he’d take a loan from the Los Angeles branch of an unnamed Israeli bank, “so I can use the money here.” Later, he says in the affidavit, he would take the money back from Israel and repay the loan here.

Mizrahi Bank, which is never named in the affidavit, is under investigation by the federal government, according to Assistant U.S. Attorney O’Brien.

“We believe the bank offers this thing as a product to clients in the U.S. — the bank pitches this as a money-laundering product. I believe there are multiple agents involved,” O’Brien said, including Kantor.

The government also believes that there are many people like Kasirer, “who occupy the same role as he did in this conspiracy,” O’Brien said.

But Kasirer was not the creator of this conspiracy, according to the government. His father — the recently deceased Jacob (Yankel) Kasirer who founded the Bais Yaakov School for Girls on Beverly Boulevard in Los Angeles and is known as a “stalwart” of the Jewish community — was involved with the scheme. According to the transcripts, when Kasirer was discussing his distress over his earlier money-laundering penalty with Lazar, the diamond dealer said, “It’s not something you started.”

Kasirer replied, “I was really not aware of what he did with my father.”

In addition, in a taped conversation, the Spinka Rebbe told Kasirer he wanted to meet with his father.

“RK’s father was engaged in this prior to RK being involved in it,” O’Brien said in an interview. “We believe that this has origins much earlier than that — beyond living memory.”

CRIME IS NOT SO BAD

“There are a million ways that religious institutions defraud the government,” said one Brooklyn accountant who asked that his name be withheld. However, it’s not just the Jews, he claimed, “churches do the same thing.” Churches and synagogues are exempt from filing tax returns — although many do — and the government usually does not audit unless it has probable cause. As a result, this can make fraud easier. In the last decade or so, a number of Chasidic institutions on the East Coast have been charged with such crimes, including the 1997 case against the Skverer Hasidim in Rockland County, N.Y., where four men were found guilty of defrauding the government of millions of dollars in federal Pell Grants. But in the Orthodox community, many defended them, despite the crime, because the money was used to support needy yeshiva students.

“Nobody here owns a yacht,” a resident reportedly said, and the feeling then — as with many such institutional fraud cases — that if the money is used to help the community and not line someone’s pockets, it’s not so bad.

That, in fact, is a pervasive attitude these days in Brooklyn, where the Spinka case raised fewer eyebrows than in Los Angeles, because the attitude is everyone does something. This kind of discussion has been a hot topic on many Internet blogs that discuss the ultra-Orthodox community.

“The government are thieves, what gives them the right to take 40 percent to 50 percent of someone’s income? Anyone who can save yiddishe gelt from going down that toilet is doing a mitzvah,” one contributor wrote on the Vosizneias (Yiddish for “What Is News?”) blog.

The blog comments, though, seem to be about evenly divided between two camps: On one hand are those castigating the government or the bloggers posting the news for spreading gossip; on the other are those demanding that the community finally put a stop to criminal behavior.

One particularly poignant plea came from New York white-collar defense attorney Joel Cohen, in an essay published in 2006 titled, “Jewish Felons: The Problem of Criminality in Observant Communities.” Cohen described witnessing a disturbing rise in crime among Orthodox and Chasidic Jews.

“The problem in the observant community, however, is not merely occasional, nor does it often make headlines. Daily, in metropolises around the country, yarmulka-wearing criminal defendants appear before the bar of justice,” he wrote.

Some prisons — especially in New York, Los Angeles and Miami — have daily minyans, visiting rabbis, kosher food, classes and Shabbat meals, Cohen wrote. “The most common charge is fraud: against businessmen and run-of-the-mill citizens alike, most frequently involving victims outside of the Jewish community, against the government, against insurance carriers, against banking institutions, health care fraud, money-laundering and stock-swindling.”

Cohen pleads with his fellow Orthodox Jews to denounce the criminal activity:

“Only with the open denouncement of wrongdoing from within the particular observant community can the community hope to demonstrate and protect the Torah’s commitment to honesty in one’s interpersonal dealings as being at least equal to, if not greater than, its commitment to technical observance of mitzvoth,” he wrote

DON’T BLAME THE MESSENGER

But the most talked-about aspect of the case — both among bloggers and at Shabbat tables on both coasts — has been the involvement of Kasirer. From the start, most here guessed accurately who he was — an informant who turned state’s evidence to save his own skin — but what they wanted to know was what was he? Was he a moser — an informer, who, according to traditional Jewish law, must be killed for turning against a Jew and is denied access to “the world to come.”

The Talmud forbids a Jew to inform on another Jew to a secular government, even if that Jew violated both secular and Jewish law.

Today, among poskim — Orthodox rabbinic deciders — there is a debate over whether a Jew may turn in another Jew in a democratic state. Some rabbis say that laws of moser do not hold in the United States because they were established to protect Jews from corrupt and anti-Semitic governments that would likely torture and give Jews worse treatment than other prisoners than merited by Jewish law.

This is not the case today in a democracy, they say. “These rules apply only to one who informs on another to bandits and so endangers that person’s money and life, as these bandits chase after a person’s body and money, and thus one may use deadly force to save oneself,” it is written in the Aruch Hashulchan, (“Laying the Table,” a book about Jewish law written in the late 19th century).

But many insist that the laws of moser do apply today, and that it is forbidden by Jewish law for one Jew to inform on another to any secular government.

Rabbi Ezra Batzri in “Dinnai Mamonut” (“Laws of Money”) says informing is prohibited. “All rules of informing are applicable even currently …. Even if they bring all matter to court, it is clear that, through interrogation and the police, government can destroy people, and in many places they do, in fact, destroy people.”

Some rabbis say you cannot be a moser, even in America, except when the person doing the questionable act may be a danger to others — a child molester, a rapist, a murderer. In those cases, it would be “permitted” to inform the authorities, writes Rabbi Hershel Schacther, a top posek. Which means that in the case of financial wrongdoings, a Jew is not allowed to inform on another Jew.

When the Spinka case broke, the Rabbinical Council of California (RCC) discussed the informant issue, RCC President Rabbi Meyer May said. But the council decided to let other halachic authorities deal with the question.

“There is no way to explain how perfidious what RK did is. He violated the spirit of Jewish law,” May said. “Having said that, it doesn’t justify what was done on the other side [by the defendants].” Although many were focusing on the moser and other justifications like “everybody does it” and “we pay more taxes than everyone else,” that is beside the point, May said. The point, he continued, is to own up to any wrongdoings. “Our business is the integrity [of the individual],” he said. “Something which is wrong is wrong.”

BUSINESS AS USUAL

On Monday morning, Dec. 31, the streets of downtown Los Angeles were eerily empty; nearly everyone had left town. But the Roybal Federal Courthouse was open, and by 8:30 a.m. there were enough Chasidic men in the third-floor corridor for a minyan: 11 — not to mention a few clean-shaven men wearing black yarmulkes — all waiting for the morning’s arraignment hearings to begin.

Grand Spinka Rebbe Weisz didn’t converse much with his gabbai Zigelman. The men pored over Hebrew books — either studying holy texts or reciting psalms — and intermittently conversed with the lawyers. It would be an hour until the court would open and another until their own hearing would begin.

Everyone was anxious for the hearing to start — not because of the upcoming secular New Year, which the ultra-Orthodox do not celebrate — but so that they could return to their homes and to their lives in Brooklyn.

The seven men had been arrested and jailed on Dec. 19, a Wednesday, and most were released before Shabbat.

Weisz and Zeligman had spent another Shabbat in Los Angeles, detained until the arraignment. The Spinka Rebbe attended Rabbi Chaim Boruch Rubin’s synagogue in Hancock Park — which itself is entangled in a legal battle over land use — and was given the honor of leading services. At this, a few men walked out in protest.

“As a parent in the community and as a rabbi in the community, since there were children in the room and since we have an obligation to teach our children right and wrong,” one person who left quietly said later. “I have no problem [with the Spinka Rebbe] sitting in the front in his normal [honored] seat,” but the man who walked out said he would have preferred “one stage less than normal” to show children “that it’s not business as usual.”

When the court opened for the hearing, most of the defendants and their supporters filed into the first row of the courtroom, except for the clean-shaven Friedman, who sat in the back, a few seats away from Zeivald, who was accompanied by an Israeli translator.

A Yiddish translator sat next to the Spinka Rebbe, and only Roth, the Israeli banker, came from the entrance behind a glass partition, clad in green prison outfit. He was the only one not yet released on bail, at the time, because the government said he was believed to pose a flight risk. Roth remains in custody.

Finally, their turn arrived. The seven filed up front, each with his separate lawyers. (Famed lawyer Donald Etra, who was originally retained to defend Weisz, was by then no longer on the case). They each declined to have the charges read to them.

“How do you plead?” Magistrate Judge Alicia G. Rosenberg asked.

One by one, Weisz, Zigelman, Naiman, Zievald, Friedman, Lazar and Roth each said: “Not guilty.”

 

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