Platinum Co-Founder Nordlicht Charged in $1 Billion Fraud

  • Six others including Co-CIO David Levy are also indicted
  • Platinum Partners filed for bankruptcy in October after raid

The co-founder of bankrupt hedge fund Platinum Partners, which for over a decade said it was delivering an average 17 percent return, was among seven people charged in what federal prosecutors said was a $1 billion fraud resembling a Ponzi scheme.

Mark Nordlicht is accused of cheating his investors by overvaluing assets and, when the fund later ran short of cash, returning investments to favored clients. Before a federal raid in June, the $1.3 billion fund had pointed to oil fields it owned in California as part of the reason for its robust returns. After the federal search, it decided to close.

"Platinum fraudulently overvalued" assets in one of its funds to “boost performance numbers, attract new investors, retain existing investors and extract high management and incentive fees," according to a U.S. indictment filed in federal court in Brooklyn, New York.

Nordlicht, a former commodities trader, founded New York-based Platinum in 2003, with seed money from Murray Huberfeld, a penny-stock trader from Brooklyn whose family owned kosher restaurants. Huberfeld was arrested in a separate federal case in June, when Manhattan prosecutors said he bribed the head of New York City’s corrections officers’ union with a Ferragamo bag stuffed with $60,000 in cash to win a $20 million pension investment to Platinum. Huberfeld has pleaded not guilty.

Prosecutors also charged co-chief investment officer David Levy and the former president of Platinum’s signature fund, Uri Landesman, with securities fraud, conspiracy and other crimes, Brooklyn U.S. Attorney Robert Capers said in a statement.

Liquidated Fund

Cayman Island liquidators for Platinum’s flagship fund filed a Chapter 15 bankruptcy petition on Oct. 18 and asked a judge to prevent anyone from disposing of the hedge fund’s assets without their permission.

Nordlicht and others were arrested on Monday and are scheduled to appear in federal court in Brooklyn. Capers has scheduled a morning press conference to detail the charges. Lawyers for the defendants couldn’t immediately be identified.

According to the indictment, Platinum’s overvaluation of assets "precipitated a severe liquidity crisis, which Platinum initially attempted to mitigate through high-interest loans between its hedge funds."

When those funds proved to be insufficient to resolve the liquidity problem, "Platinum began selectively paying some investors ahead of others, contrary to the terms of its governing documents,” according to the indictment.

(Updates with details of allegations in third paragraph.)
    Before it's here, it's on the Bloomberg Terminal.