SEC Charges Platinum Funds and Founder for Engaging in Fraudulent Scheme

Mark Nordlicht inflated asset values and illicitly moved investor money to cover losses and liquidity problems.

The US Securities and Exchange Commission (SEC) has charged the founder of Platinum Partners and its two hedge fund advisory firms with conducting a fraudulent scheme to inflate asset values and illicitly move investor money to cover losses and liquidity problems.

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Suspicious Activity

The SEC uncovered the suspicious activity during an examination of the firms which was then further investigated. The SEC alleges that Mark Nordlicht and the Platinum funds overstated the value of an oil company that was among their largest assets, and they concealed a growing liquidity crisis by transferring money between the funds, making preferential redemptions to favoured investors, and using misrepresentations to attract new investors to the struggling funds during what internal documents referred to as “Hail Mary time”.

Investors were repeatedly presented a false picture of the performance of the Platinum funds.

It was further alleged that Nordlicht schemed with two colleagues and an executive at the Platinum funds’ other major oil investment to divert close to $100 million from that company to help boost the Platinum funds.

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False Statements

That company’s noteholders had priority over preferred shares and Platinum’s management and its affiliates were prohibited from participating in any vote among noteholders to change this priority. Therefore, Nordlicht and others allegedly rigged the vote by secretly transferring a large block of notes to affiliates, which then cast votes in support of Platinum’s position. The solicitation document falsely stated that Platinum held only a small minority of the notes.

Andrew J. Ceresney, Director of the SEC’s Division of Enforcement, commented: “As alleged in our complaint, 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.”

SEC has charged several other individuals in addition to Nordlicht for their roles in the alleged schemes:

  • 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.
  • Jeffrey Shulse, CFO of Black Elk Energy, the oil company used in the illicit $100 million scheme.

The regulator 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 liquidation proceedings in the Cayman Islands.

In a parallel action, a US district court has also announced criminal charges.

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