This May two funds operated by Platinum Partners, the hedge fund firm whose founder was criminally charged on Monday, along with six other executives, with securities fraud, borrowed in excess of $22 million as it became clear that Platinum’s funds, facing mounting redemption requests, were running out of road and desperately needed cash to stay afloat. Among those who lent the money to Platinum were Richard Stadtmauer and his wife Marisa.
The couple are the aunt and uncle of Jared Kushner, Donald Trump’s son-in-law and one of the president-elect’s most trusted advisers. It is a family connection that goes way back. Richard Stadtmauer was the second-in-command to Jared Kushner’s father Charles Kushner at the family real estate firm Kushner Companies. And in 2009 Stadtmauer was sentenced to 38 months in prison for crimes related to the same business dealings for which Jared Kushner’s father Charles received a two-year prison sentence. Stadtmauer is the brother of Charles’ wife Seryl, Jared’s mother. The connection to Platinum was first reported in the New York Post.
Platinum Partners was founded in New York in 2003. Its two principal funds are the Platinum Partners Value Arbitrage Fund (PMVF) and the Platinum Credit Opportunities Master Fund, both of which are managed by chief investment officer Mark Nordlicht, according to Platinum’s own marketing materials. Platinum Partners, which portrayed itself as having a knack for finding unusual, and often illiquid, investment deals — and which claimed to have a stellar performance record — reported having $1.7 billion in assets in its most recent Form ADV filing with the Securities and Exchange Commission.
According to the criminal indictment against Nordlicht and six other current or former employees of Platinum, filed in the United States District Court for the Eastern District of New York, between 2011 and 2016 Nordlicht and others engaged in one or more schemes to defraud investors or-would be investors in Platinum funds. The government’s criminal complaint, and a parallel civil complaint filed by the Securities and Exchange Commission, paint a picture of a firm which, starting in around 2014, was facing severe liquidity crisis owing to its high degree of illiquid holdings and redemption requests from investors. Simultaneously, from about 2012 on, Platinum was having problems with some underperforming and illiquid energy-related assets. As a result, the government alleges, Platinum mis-marked some assets and engaged in one or more fraudulent schemes in order to free up capital to pay redemptions.
Institutional investors largely avoided any involvement with Platinum Partners, according to research, court fillings, and reports. Platinum Partners’ largest institutional investor was the $81 million retirement fund for the New York Correction Officers’ Benevolent Association (COBA). At one point in 2014, COBA had $20 million, or up to 40 percent of its assets, invested in Platinum Partners, making the union pension plan “Platinum’s most significant institutional investor,” according to a separate criminal complaint filed by the U.S. government against another Platinum founder, Murray Huberfeld, and COBA president Norman Seabrook. That complaint alleges that Seabrook received kickbacks for directing COBA investments into Platinum.
Most of Platinum’s investors are ultra-high-net worth individuals, many with connections to New York’s Jewish community. Some of these same investors — such as the Jay Cohen Revocable Trust, which according to court fillings requested in late 2014 to redeem $300,000 from Platinum — were investors in the Ponzi scheme orchestrated by Bernie Madoff, who himself was once a staple of the New York financial scene until his massive fraud was uncovered in late 2008.
By June of 2015, Platinum Partners was coming under pressure for its relationship with Seabrook. Nonetheless, the firm was still seeking to raise money not only from would-be investors but also lenders.
In August 2015, PMVF and its offshore feeder fund — Cayman Island-based Platinum Partners Value Arbitrage Fund (International) — entered into a credit agreement with Illinois-based Heartland Bank, whereby the bank lent the funds $7 million. The next month the funds borrowed a further $1 million from a registered investment fund called Parris Investments. In December it borrowed $9.3 million from another investment fund, Kismetia Ltd.
Then, on May 27, 2016, PMVF and the feeder fund received three separate loans. One was a $6.3 million loan from Richard Stadtmauer, the second was a $4.1 million loan from Marisa Stadtmauer, and the third was a $2.2 million loan from the National Society for Hebrew Day Schools. All three loans were in the form of a promissory note with an interest rate of 7 percent.
Almost a month to the day after the Stadtmauer loans were made, Bloomberg reported that Platinum Partners’ offices were raided by the FBI. The raid was not connected to the Huberfeld, Seabrook investigation but rather to a second investigation.
Just days after the raid, Platinum lender Parris Investments filed a petition in a Cayman court to wind up the Offshore Feeder Fund. As a result of this petition, oversight of the assets was taken away from Platinum — which has also hired an administrator in the US to oversee the wind down of that fund — and the two funds began bankruptcy proceedings.
Now creditors and investors alike must wait to see what, if anything, they will get back.