Five money management executives were arrested on Monday in connection with an alleged $1 billion fraud scheme involving hedge funds managed by Platinum Partners.
Two executives who worked for a company Platinum invested in through its flagship hedge fund also were arrested and charged with fraud.
The arrests were confirmed by an FBI spokeswoman.
The eight-count criminal indictment was unsealed Monday in a U.S. District Court in New York and alleges that the seven defendants participated in a scheme to defraud existing and new investors between 2012 and 2016, court documents show.
The charges state that throughout the period, executives of Platinum Partners and a portfolio company:
- overvalued assets in the company's flagship hedge fund, Platinum Partners Value Arbitrage Fund;
- provided investors with inflated performance of PPVA and another hedge fund, Platinum Partners Credit Opportunities Master Fund;
- understated severe liquidity problems within PPVA;
- provided preferential redemption to some investors; and
- used new investment capital to meet redemption requests from existing investors.
Charged with securities fraud, investor adviser fraud and wire fraud were Mark Nordlicht, a Platinum Partners founder and the firm's chief investment officer; David Levy, co-CIO; Uri Landesman, former managing partner and president of Platinum Partners Value Arbitrage Fund; Joseph SanFilippo, chief financial officer of the PPVA fund; and Joseph Mann, a member of Platinum's investor relations and finance departments, court documents showed.
Mr. Nordlicht, Daniel Small, former managing director and co-portfolio manager of Black Elk Energy Offshore Operations, an oil and gas company controlled by Platinum Partners between August 2010 and September 2015, and Jeffrey Shulse, Black Elk's former CEO, are charged with securities fraud and wire fraud conspiracy for allegedly defrauding Black Elk's independent bondholders and diverting funds from a fraudulent offering document to Platinum.
The Securities and Exchange Commission filed a parallel civil complaint against the seven defendants as well as Platinum Management (NY) and Platinum Credit Management in the same District Court on Monday.
The SEC said in a news release that its examiners uncovered “suspicious activity” during an examination of the firm and passed it on to the commission's enforcement staff.
“As alleged in our complaint, investors were repeatedly presented a false picture of the performance of the Platinum funds and their overall liquidity situations,” said Andrew J. Ceresney, director of SEC's enforcement division, in the news release, adding “As investors sought redemptions, the defendants engaged in numerous improper measures in an attempt to meet investor redemption requests.”
Mr. Shulse worked for Black Elk Energy for about one year, during which Platinum Partners was the majority shareholder of Black Elk. Mr. Shulse never worked for Platinum Partners nor marketed its products to investors, said his attorney, F. Andino Reynal, a partner at Fertitta Reynal LLP, Houston, in a statement. ”Mr. Shulse's indictment is a clear case of overreaching by the U.S. Attorney's office. Mr. Shulse is confident that once a jury has had a chance to hear all the facts, it will exonerate him of any wrongdoing.”
Attorneys for the other defendants did not immediately return calls seeking comment.