Platinum Partners’ co-founder Mark Nordlicht and David Levy, the former hedge fund’s chief investment officer, were found guilty on conspiracy and securities fraud charges after a nine-week trial in a Brooklyn federal courtroom in which their lawyers often seemed to be trying to put the government on trial.
In the end, the verdict was mixed. Though the two men were found guilty of charges surrounding the bankruptcy of an oil exploration company Platinum owned, they weren’t convicted of overvaluing the illiquid securities that prosecutors alleged were inflated to goose reported returns (and fees) as part of what was initially billed as a $1 billion Ponzi fraud.
The two men were found guilty of two counts of conspiracy and one count of securities fraud for diverting assets from Black Elk Offshore Operations, the oil exploration company, to other Platinum entities before it filed for bankruptcy, defrauding Black Elk’s bondholders.
In 2014, Black Elk was struggling and on the brink of bankruptcy, according to prosecutors. In anticipation of this, the defendants and their co-conspirators at Platinum conceived a plan to extract the remaining value from Black Elk prior to its entering bankruptcy by a series of transactions, prosecutors alleged.
First, the defendants sold Black Elk’s best-performing assets to another entity and eventually repurchased them for Platinum. After they were told by counsel that a Texas statute prohibited distributions to members of a company that could render said company insolvent, Nordlicht sent an “urgent” email to wire the money, prosecutors alleged.
Also, Levy talked about plans to transfer Black Elk’s remaining oil and gas assets to another Platinum-owned company, Northstar, prosecutors said. When he was told that was fraud, Levy allegedly responded “So what if this is fraud, do you know how long it will take for them to find this out?”
But charges that Platinum execs lied to investors about the health and liquidity of their flagship fund, Platinum Partners Value Arbitrage, didn’t stick. The prosecutors had alleged the men paid off redemptions with new investments, akin to a Ponzi scheme.
Nordlicht’s attorney Jose Baez — a criminal defense lawyer who gained fame for winning an acquittal in the Casey Anthony case — made an impassioned closing argument in which he said the government had lied because a conviction would be a career booster for prosecutors.
“Don’t think for a second that there aren’t motives involved,” he told the jury, according to a report in Reuters. Baez argued that Nordlicht had told investors about the risks they faced, even as Platinum’s flagship fund began to unravel. Moreover, he said, Nordlicht was also an investor in the fund.
“For you to believe that he’s defrauding those investors, he’s got to defraud himself,” Baez said, according to the report.
Earlier, Platinum had also argued that press reports that the fund was under investigation had been leaked by government prosecutors to the media, causing Platinum’s assets to plummet in value.
[II Deep Dive: Platinum Trial Is Delayed, but War of Words Continues]
A subsequent Wall Street Journal article stated that investigators were looking into whether Platinum was paying off existing investors with new money. “The suggestion that Platinum was a Ponzi scheme in July 2016 (six months before any indictments) was devastating to Platinum’s ability to monetize their assets,” Platinum lawyers argued.
Until it began to unravel, Platinum Partners had a stellar record, with annualized returns of about 17 percent through 2015 for the flagship fund, Platinum Partners Value Arbitrage.
Nordlicht and Levy were charged with eight charges of fraud in December of 2016. Their co-defendant, Platinum chief financial officer Joseph SanFilippo, was found not guilty.
Platinum was also embroiled in a separate $20 million bribery case involving a New York City union official, former Rikers’ union chief Norman Seabrook, who was convicted last year.