Platinum Partners co-founder Mark Nordlicht on Tuesday was convicted of defrauding investors in what prosecutors likened to a Ponzi scheme and once called one of the biggest investment frauds ever.
The verdict was returned by a federal jury in Brooklyn, N.Y.
When Platinum's flagship hedge fund was on the brink of collapse, Mr. Nordlicht and other executives concealed the truth from investors to stave off withdrawals and bring in fresh capital, prosecutors said. The government, which initially called it a $1 billion investment fraud, ultimately argued to jurors that Mr. Nordlicht and his co-defendants cheated investors out of millions, after the trial judge narrowed the scope of their case.
For more than a decade, Platinum Partners boasted some of the headiest numbers in the hedge fund industry, including 17% average gains through 2015 for the flagship fund, Platinum Partners Value Arbitrage. The U.S. said the fraud also involved two other funds Mr. Nordlicht operated.
Mr. Nordlicht, former co-chief investment officer David Levy, and Joseph SanFilippo, who was chief financial officer of the Value Arbitrage fund, were accused of using loans and money from new investors to pay off old ones, as Ponzi schemes do, prosecutors claimed.
In a second scheme, the U.S. charged that in 2016, Mr. Nordlicht and his alleged co-conspirators inflated the value and liquidity of unprofitable oil projects to exalt a fund that "held no more value than a tarnished piece of cheap metal." Prosecutors called it "one of the largest and most brazen investment frauds perpetrated on the investing public." The U.S. alleged that Messrs. Nordlicht and Levy diverted the proceeds of asset sales tied to Black Elk Energy, one of the largest companies in Platinum's portfolio.
Mr. Nordlicht was convicted of three counts tied to the Black Elk scheme: one of securities fraud, one of conspiracy to commit securities fraud, and one of wire fraud conspiracy. He was cleared of the Platinum fraud charges.
Mr. Levy was convicted of the same charges. Mr. SanFilippo was acquitted of all charges.
Mr. Nordlicht's lawyer, Jose Baez, told the jurors in his closing argument that the case was a "disgrace" and that it was the prosecutors who were lying -- to them. Mr. Baez said there was no evidence Mr. Nordlicht intended to commit fraud and instead had a "good faith" belief that he could resolve the fund's woes.
U.S. District Court Judge Brian Cogan had expressed skepticism about some of the government's proof and, at a hearing last month, told defense lawyers he might consider their request to dismiss a conviction if the jury founds their clients guilty.
