Platinum Partners’ executives charged with $1 billion fraud
Staff Writer |
The Securities and Exchange Commission (SEC) charged the founder of Platinum Partners and two of its flagship hedge fund advisory firms.
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They were charged with conducting a fraudulent scheme to inflate asset values and illicitly move investor money to cover losses and liquidity problems.
SEC examiners uncovered suspicious activity during an examination of the firms and referred it to SEC enforcement staff for further investigation.
The SEC’s complaint filed in federal court in Brooklyn alleges that Mark Nordlicht and the Platinum funds overstated the value of an oil company that was among their largest assets.
They allegedly concealed a growing liquidity crisis by transferring money between the funds, making preferential redemptions to favored investors, and using misrepresentations to attract new investors to the struggling funds during what internal documents described as “Hail Mary time.â€
The SEC’s complaint further alleges that Nordlicht schemed with two colleagues and an executive at the Platinum funds’ other major oil investment to divert almost $100 million from that company to help boost the Platinum funds.
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.
So 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.
The SEC’s complaint charges several other individuals in addition to Nordlicht for their roles in the alleged schemes.
In a parallel action, the U.S. Attorney’s Office for the Eastern District of New York today announced criminal charges.
The SEC 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 a liquidation proceeding in the Cayman Islands. ■