Platinum’s Co-Founder Nordlicht Is Found Guilty of Conspiracy and Fraud

(Bloomberg) -- Platinum Partners co-founder Mark Nordlicht was convicted in a case prosecutors likened to a Ponzi scheme and once called one of the biggest investment frauds ever.

But the verdict, by a federal jury in Brooklyn, New York, cleared Nordlicht and a co-defendant of five other charges tied to his operation of Platinum hedge funds.

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.

Prosecutors said Nordlicht and Levy inflated the worth and liquidity of unprofitable oil projects to exalt a fund that “held no more value than a tarnished piece of cheap metal.” The jury found the two diverted the proceeds of asset sales tied to Black Elk Energy, one of the largest companies in Platinum’s portfolio, and convicted them of funneling more than $77 million to Platinum.

The two were found guilty on three counts tied to Black Elk: securities fraud, conspiracy to commit securities fraud, and wire fraud conspiracy. They were acquitted on five charges tied to the Platinum scheme. SanFilippo was cleared of all charges.

Defense lawyers for Nordlicht and Levy renewed their motions to dismiss the charges and set aside the verdict, and the judge invited them to file the papers this month.

Energy Racket

For more than a decade, Platinum Partners boasted some of the headiest numbers in the hedge fund industry, including 17 percent average gains through 2015 for the flagship fund, Platinum Partners Value Arbitrage. At the same time, the government argued, the fund heavily invested in oil and gas ventures, Black Elk and Golden Gate Oil, that performed significantly below the valuations that Nordlicht and his co-defendants attributed to them.

The U.S. alleged that when Platinum’s flagship hedge fund was on the brink of collapse, the executives lied to investors to stave off withdrawals and bring in fresh capital. Prosecutors, who initially called it a $1 billion fraud, ultimately argued to jurors that Nordlicht and his co-defendants cheated investors out of millions, after the trial judge narrowed the scope of their case.

In announcing the case, in 2016, then-Brooklyn U.S. Attorney Robert Capers called the scheme “one of the largest and most brazen investment frauds perpetrated on the investing public.” At the time, government said the defendants, if convicted, faced as many as 20 years in prison.

Nordlicht, a former commodities trader, started Platinum in 2003 with seed money from Murray Huberfeld, a penny-stock financier from Brooklyn. Platinum marketed itself as a “multi-strategy fund” designed to achieve “significant risk-adjusted returns irrespective of the direction of any broader market activity.” The fund touted its top-tier auditors and independent valuations.

But those gatekeepers relied on Platinum to provide information, the U.S. said.

At the trial, which began on April 23, prosecutors called as witnesses several former Platinum employees who had agreed to testify about their role in the alleged fraud. Among them was Andrew Kaplan, the former chief marketing officer, who pleaded guilty and secretly recorded telephone calls and meetings with Nordlicht and others, which were played for the jury.

Even as a liquidity crisis gripped the fund in January 2015, Assistant U.S. Attorney Alicyn Cooley argued, Nordlicht and his team exaggerated its prospects to get a fresh infusion of cash, promising the fund’s value would be up 8% by April of that year.

‘Made-Up Number’

“They announced this made-up number when the fund was about to go under,” Cooley said. “The concept is, if you tell a lie because you hope things will work out, it doesn’t change the fact that you told a lie.”

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. Baez said there was no evidence Nordlicht intended to commit fraud and instead had a “good faith” belief that he could resolve the fund’s woes.

Baez argued that because Nordlicht was Platinum’s largest investor, he had no motive to compromise the fund.

“If you believe he was defrauding investors, you’d have to believe he was defrauding himself,” he said.

Not Over Yet

The jury deliberated for about four days before reaching its verdict.

SanFilippo’s lawyer, Kevin O’Brien, said his client was “thrilled” with his acquittal.

“We have constantly maintained that this case should never have been brought. Joe now turns to putting his life and family back together,” he said.

U.S. District Judge Brian Cogan, who presided over the case, expressed skepticism about some of the government’s proof during the trial. On Tuesday, after lawyers renewed their requests to set aside the convictions, Cogan said he may hear oral arguments on the matter.

“As we know from these motions,” he said, “it’s not over yet.”

The case is U.S. v. Nordlicht, 16-cr-640, U.S. District Court, Eastern District of New York (Brooklyn).

--With assistance from Chris Dolmetsch.

To contact the reporter on this story: Patricia Hurtado in Federal Court in Manhattan at pathurtado@bloomberg.net

To contact the editors responsible for this story: David Glovin at dglovin@bloomberg.net, Peter Jeffrey

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