New York hedge fund execs accused of $1.4b fraud

Nordlicht led operations at Platinum Partners that have been likened to a Ponzi scheme by prosecutors.
Nordlicht led operations at Platinum Partners that have been likened to a Ponzi scheme by prosecutors.

NEW YORK • Top executives of hedge fund manager Platinum Partners were arrested and charged with running a US$1 billion (S$1.4 billion) fraud that federal prosecutors said became "like a Ponzi scheme" as its largest investments lost much of their value.

Led by Mark Nordlicht, Platinum was known for years for producing exceptionally high returns - about 17 per cent annually in its largest fund - by taking an unusually aggressive approach to investing and fund management.

Nordlicht, Platinum's founding partner and chief investment officer, and six others - including co-chief investment officer David Levy and Uri Landesman, ex-president of Platinum's signature fund - have been accused by federal prosecutors of participating in schemes to defraud investors.

"The charges... highlight the brazenness and the breadth of the defendants' lies and deceit," Brooklyn US Attorney Robert Capers told reporters.

Mr Capers added that the case was one of the largest and "most brazen" investment frauds ever and Platinum was ultimately exposed to have "no more value than a tarnished piece of cheap metal".

The US Securities and Exchange Commission (SEC) announced parallel charges on Monday against the same executives and two Platinum entities for similar civil fraud charges. Platinum tapped prominent families and foundations within the Orthodox Jewish community in New York to fuel high-stake bets on payday lenders, oil companies and even the terminally ill.

But prosecutors said these investments and the firm's performance were misrepresented by its executives. Ultimately, Platinum took in new money in order to pay long-time investors who wanted their money back.

"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," said Mr Andrew Ceresney, director of the SEC's enforcement division.

Founded in 2003 and located near Central Park, Platinum made a splash early on with some of its investments. In one bet, the firm sought to profit from the death of terminally ill patients by investing in variable insurance payouts.

A 48-page criminal indictment said since 2012, Nordlicht and four other defendants defrauded investors by overvaluing illiquid assets held by its flagship Platinum Partners Value Arbitrage funds, mostly troubled energy-related investments.

This caused a "severe liquidity crisis" that Platinum at first tried to remedy through high-interest loans between its funds before selectively paying some investors ahead of others, the indictment said.

REUTERS, NYTIMES

A version of this article appeared in the print edition of The Straits Times on December 21, 2016, with the headline 'NY hedge fund execs accused of $1.4b fraud'. Print Edition | Subscribe