The founder of a supposed $1.7 billion hedge fund has been charged with fraudulently inflating asset values of the fund and moving investor money around to cover losses and liquidity problems, the Securities and Exchange Commission announced Monday.
Mark Nordlicht, of New Rochelle, N.Y., the founder of Platinum Partners, and two the hedge fund’s advisory firms, along with several other individuals who worked for Platinum funds or the advisory firms also, were charged.
The SEC’s complaint filed in federal court in Brooklyn alleges that Nordlicht and Platinum funds overstated the value of an oil company that was among their largest assets, and then concealed a growing liquidity crisis by transferring money between the funds, making preferential redemptions to favored investors, and using misrepresentations to attract new investors.
Nordlicht schemed with others to divert almost $100 million from a major oil company investment to help boost the Platinum funds, the SEC says. Internal documents uncovered during the investigation called the time while these events were going on a “Hail Mary time,” the SEC says.
The U.S. Attorney for the Eastern District of New York also filed criminal fraud charges against Nordlicht and the other individuals.
“Investors were repeatedly presented a false picture of the performance of the Platinum funds and their overall liquidity situation. As investors sought redemptions, the defendants engaged in numerous improper measures in an attempt to meet redemption requests, including taking out high-interest rate loans, commingling monies among funds, and raising money from new investors through fraudulent misrepresentations,” says Andrew J. Ceresney, director of the SEC’s Division of Enforcement.
Andrew M. Calamari, director of the SEC’s New York regional office, says, “Nordlicht and others allegedly disregarded their fiduciary duties in systematic fashion and made it appear to investors that the funds were much more valuable and liquid than they actually were.”
Others charged in the SEC's complaint and criminal complaints are Platinum Management (NY) LLC and Platinum Credit Management LP; David Levy, owner and co-chief investment officer along with Nordlicht; Daniel Small, former managing director and portfolio manager of certain Platinum funds; Uri Landesman, former managing general partner of certain Platinum funds; Joseph Mann, who worked in Platinum Management’s investor relations department; Joseph SanFilippo, CFO of a Platinum hedge fund; and Jeffrey Shulse, CFO of Black Elk Energy, the oil company used in the illicit $100 million scheme.
The SEC is seeking a court-appointed receiver over funds managed by Platinum Credit Management and other Platinum-related entities. Funds managed by Platinum Management are currently in a liquidation proceeding in the Cayman Islands, the SEC says.
