Ever since he won a surprise acquittal for accused child murderer Casey Anthony in 2011, criminal defense attorney Jose Baez has had a flamboyant reputation for convincing jurors to let his often-unsavory clients walk free.
But when he took on the complex federal securities fraud case against Platinum Partners co-founder Mark Nordlicht — who ran what was once a $1.7 billion hedge fund firm — Baez nonetheless seemed an odd choice. His eponymous law firm is based in Orlando, Florida, not Manhattan; his other notable clients have included celebrities like Aaron Hernandez, whom he managed to get acquitted of a double homicide while the former NFL star was serving time for another murder.
In the Platinum case, Baez’s client was accused of something far less sensational, but serious nonetheless: defrauding investors in his hedge fund as well as bondholders in a company Platinum controlled.
Baez believes, however, that all juries are alike. Whether in a murder trial or a white-collar case, they’re “just fine folks like you and me,” he says. And as the nine-week Platinum trial wound to a grueling finish last June, the New York native had a brainstorm he thought would help jurors in a Brooklyn courtroom feel his client’s pain: a clip from the Hollywood classic It’s a Wonderful Life.
“As I was learning about the case, this phrase ‘bank run’ kept coming up. And then I remembered in It's a Wonderful Life there was a bank run scene,” he told Institutional Investor in a recent interview. “So I went on YouTube and I played it, and I'm like, ‘This is this case.’"
Baez has gained a grudging respect from others in the defense bar for his many high-profile wins and his uncanny ability to connect with jurors in a way some corporate lawyers also involved in the Platinum case acknowledge they could not. (“Let’s rock and roll,” one juror was heard saying as Baez began a day of cross-examination.)
“This is going to break things up a little bit for you,” Baez told jurors in the middle of his closing argument before proceeding to show the film’s famous Depression-era scene, in which Jimmy Stewart plays a beloved small-town banker fending off a run on the bank by explaining to depositors that their money isn’t in a vault — it has been lent out to others in the community.
“That's illiquidity,” says Baez — the same fate, he argues, that befell Platinum.
In his telling, Nordlicht was George Bailey, the movie’s protagonist, and Mrs. Nordlicht was Bailey’s wife — both putting in their own money to save the bank. In the film, there is even a surly investor demanding all of his money back. That person, Baez said, was like Amir Shaked, a fund-of-funds manager and whistleblower who was one of four investors who testified that Platinum insiders had lied to them about the fund’s financial situation and refused to return their money as they believed the terms of their investment required.
“This bank run could bring the whole fund down,” Baez explained as he finished playing the clip. In that one visual, the attorney conjured the problems facing Platinum in the most benign way possible. Says Baez: “It was literally the same exact thing that was unfolding in this case.”
There was no argument that Platinum was a fund in trouble.
After years of double-digit performance, in 2012 Platinum’s main hedge fund encountered serious problems and was soon facing angry investors who wanted their money back — money Platinum did not have.
By 2016 these problems had led several investors to file whistleblower complaints to the Securities and Exchange Commission, and bondholders in an oil company it controlled had sued Platinum. To top it off, another of the fund’s founders, Murray Huberfeld, was charged that June with a kickback scheme in which he had paid $60,000 in bribes to the president of the New York City corrections officers union in exchange for a $20 million union investment in Platinum — money Platinum desperately needed to meet a rising tide of redemptions.
Less than a week after Huberfeld’s arrest, Platinum announced it would go into liquidation, and six months later an eight-count indictment against seven individuals connected with the hedge fund was filed in federal court.
When the U.S. attorney for the Eastern District of New York, Robert Capers, unveiled the charges on Dec. 19 2016, he accused Platinum insiders of running a $1 billion “Ponzi-like scheme,” masterminded by Nordlicht, that defrauded Platinum’s investors by using loans and new investor funds to pay off existing investors.
To pull off the scheme, Capers said, the Platinum executives were “falsely claiming that their flagship hedge fund was thriving when in fact it was not, and by overvaluing its assets when in reality the assets were doomed and the fund was a sinking ship.”
Nordlicht and three others were also charged with rigging a vote to change the bond covenants of Black Elk Energy, Platinum’s biggest investment, to extract millions of dollars from the company.
Platinum looked to be the most significant hedge fund scandal since Preet Bharara, then the U.S. attorney for the Southern District of New York, sent dozens of insider traders to prison — and even wrangled a guilty plea from Steve Cohen’s SAC Capital in 2013.
But this case didn’t turn out as expected.
Three of the men who went to trial last year — Nordlicht, his co-CIO David Levy, and CFO Joseph SanFilippo — were found not guilty of the “Ponzi-like” investment fraud.
And while Nordlicht and Levy were convicted in the alleged bond-rigging scheme, soon there was an even bigger upset.
In what former prosecutors and defense attorneys say is an exceedingly rare move, U.S. District Judge Brian Cogan — who told jurors as they went into deliberations that they were “the sole, exclusive judges of the facts” — threw out Levy’s convictions and ordered a new trial for Nordlicht.
The judge’s move was a shocker. “The court decision essentially nullifies the jury verdict and all of the hard work that the jury did,” says Christopher Nasson, a former prosecutor in the Eastern District of New York who is now a partner at K&L Gates. “There are times when that may be appropriate, but those times are few and far between.”
Prosecutors quickly appealed, arguing that the judge had overstepped his authority and “usurped the role of the jury by imposing [his] own view of the evidence.”
What happened? Cogan, it seemed, sided with hedge fund managers over hedge fund investors. “There was never a doubt that the judge didn’t like this case and he thought the evidence was garbage,” says attorney Baez. “They never should have brought this case.”
“I rarely get guilty verdicts,” adds Baez. And in this case he had a secret weapon: Judge Brian Cogan.
From the beginning of the trial, Cogan had sent out clear signals that, as one whistleblower puts it, “he just did not want to send these guys away.”
“I’m possibly having some issues with the government’s case,” Cogan said on April 29, six days into the trial. “First of all, I don't think there's anything illegal about a hedge fund or any business preferring its favorite customers over other customers. It's like every business that gets into trouble.”
That was a blow to a key prosecution allegation; even defense attorneys were stunned. “We could not believe what we were hearing,” says one of the defense attorneys in the case. “Part of us was thrilled, obviously. Part of us was like, ‘I wish he hadn’t told them that they’re losing, because now they’ll fix it.’” Cogan would eventually tell jurors that Platinum’s preferential redemptions were not illegal.
Cogan continued to be cross with prosecutors as the case wore on. He belittled and dismissed their witnesses, at one point threatened to call a mistrial, and eventually told jurors to disregard key elements of the government’s case.
Judges are supposed to be independent arbiters of the law, but Cogan, a former corporate lawyer with Stroock & Stroock & Lavan appointed to the bench by President George W. Bush in 2006, tipped his hand in one sidebar discussion with prosecutors.
“There’s policy ramifications from this case . . . because you're actually saying they should have stopped and gone into liquidation at a much earlier state than they did,” Cogan told a stunned Assistant U.S. Attorney Lauren Elbert, who at the time was explaining that the Platinum executives were trying to get new investors “after the point that the liquidity crisis was severe and they couldn't pay redemptions without disclosing those facts.”
Cogan seemed more concerned about what might happen to Platinum if it didn’t get new investors: “We do want to encourage qualified investors to take risks with qualified hedge funds,” he said. “We don't want to drive anybody out of business too early; that just hurts everybody — including the kinds of innovations that hedge funds back.”
Platinum was definitely a risk-taking hedge fund. In fact, those who know Nordlicht say that taking on inordinate risk was his fatal flaw.
“This is a guy who has an insatiable appetite for risk, which he doesn’t think he has,” says one person familiar with Nordlicht and the inner workings of Platinum’s hedge fund. “His philosophy is, ‘If it’s not a problem today, I’m not going to think about it today.’”
Nordlicht was known for his generosity in the Jewish community of New Rochelle, New York, where he lives. But he could explode in anger at work when trades went the wrong way, this person says: “He was a screamer.” That may have been a trait that suited Nordlicht well working in New York’s commodities pits, where he got his start in the world of finance before launching a hedge fund. But in court, it got him in trouble: During the trial, Nordlicht became so incensed by Assistant U.S. Attorney Elbert that he lunged at her in the hallway outside of the courtroom, yelling, “You have no fucking morals.” The outburst led the judge to send Nordlicht to a federal lockup to cool off for a night. In court the next day, the judge remarked that he had seen Nordlicht “fulminating in rage” in the courtroom.
“I've had cases with mafia hitmen, Mexican sicarios, and terrorists who try to blow up buildings, and I've never had any one of them act this way,” Cogan said.
(Nordlicht declined to be interviewed for this article.)
To be sure, Platinum’s downfall was humiliating for Nordlicht, who considered himself the best investor in the world, according to former colleagues. He was convinced the fund would have eventually come back had the government not intervened — a view that Cogan seemed to find plausible.
“It was a solid fund and it was built a certain way,” says Baez. “When I was unfolding the file and really looking at how they made money, it was brilliant.”
The strategy, he explains, was to lend money to troubled companies at high interest rates. If the company went bankrupt, Platinum ended up with a chunk of it.
While Platinum’s flagship fund had delivered annualized returns of about 17 percent since its debut in 2003, it began to falter when Houston-based Black Elk, its biggest investment, experienced an explosion in its Gulf of Mexico offshore drilling operation in 2012. Black Elk was further hammered when oil prices fell by about 50 percent in 2014. In 2015, it filed for bankruptcy.
The Black Elk position was totally illiquid, a so-called Level 3 asset whose stated value couldn’t easily be analyzed or monetized. Eventually, Black Elk and other illiquid assets made up all of the flagship fund’s assets.
The illiquid nature of the fund created a problem: Platinum’s investors who testified at trial said they had gone into the fund precisely because of its liquidity terms. Platinum’s flagship offered quarterly redemptions with 60 days’ notice, and investors assumed they could get their money out quickly.
Perhaps Platinum should have been a private equity fund, or at least a hedge fund with long lockups, but it wasn’t, and investors said they had been misled.
“They emphasized the liquidity, the solid returns, the trading acumen of Mark Nordlicht, especially in the energy sector,” testified investor Abraham Gulkowitz of Brookville Capital. He said that, in a bid to convince him to roll over money Platinum owed him, Nordlicht and others had told him the flagship fund was diversified and liquid.
Behind the scenes, however, Nordlicht and other Platinum executives were scrambling to keep the fund afloat. They took out intercompany loans, poured more of their own money into it, and even started a reinsurance company that could take on some of the illiquid assets.
And a month before Platinum convinced Gulkowitz to roll over his investment into the flagship fund, Nordlicht wrote then-president Uri Landesman that the fund was in a “code red” situation.
Whatever Nordlicht did to try to save Platinum, says a former insider, “he generally believes he did absolutely nothing wrong. He’s an ends-justifies-the-means kind of guy.”
The government argued those means involved manipulating the fund’s valuations to try to keep investors from jumping ship. Prosecutors honed in on one particular number: 8 percent.
As a deadline to make withdrawals in March 2015 came near, Platinum was facing $79 million in redemptions it could not meet. Executives began pressing investors to stay in the fund.
The next month, they said, would be the biggest in Platinum’s history. Nordlicht and others began telling investors they expected to have an 8 percent month due to positive developments at several holdings.
At the time the 8 percent was being forecast, the number was “manufactured,” testified Andrew Kaplan, who had been in Platinum’s investor relations department and was one of several former executives who pleaded guilty to securities fraud and cooperated with the government. No one, he said, could determine what the return would be.
Still, the gambit worked, as a number of investors withdrew their redemption requests at that point.
Under the terms of the fund, Nordlicht had sole authority over determining the value of Platinum’s Level 3 assets — but Cogan wasn’t convinced he had tried to deceive investors.
“I view it as a factual issue as to whether the 8 percent was a misrepresentation, whether it was pulled out of the air, whether it was based on the valuations,” he told the lawyers outside of the jury’s presence.
In the end, prosecutors weren’t allowed to argue there was anything suspect about the 8 percent number — or any of the fund’s valuations. “The valuation of Platinum's assets was proper and you must accept that as a fact. Therefore, fraudulent valuations cannot serve as a basis to convict any defendant,” Cogan said in his charging instructions to the jury.
While the valuations were central to the government’s case, they weren’t the only evidence Cogan threw out. At the outset, he forbade any mention of Platinum being a $1 billion fund, lest the big number spook jurors about losses incurred.
With valuations and losses out, prosecutors and defense attorneys were left to spar over whether investors had been warned that the fund was illiquid — the very issue Baez focused on with his It’s a Wonderful Life reference.
“I was just blown away by how many times the liquidity warning signs were there,” says Baez. “They were mentioned all over the place, multiple times.”
But former prosecutors say the evidence was not so clear-cut. “Now they have to focus on liquidity arguments; that becomes pretty technical to the average person. It leads to other confusion, and when you've got confusion, jurors tend to err on the side of acquittal,” says attorney Nasson.
The jury ultimately found the defendants not guilty of the investment fraud, essentially agreeing with the argument that investors had signed away their rights when they gave Platinum their money — a warning to hedge fund investors as well as private equity investors for whom Level 3 assets loom large.
“They knew what they were getting into,” says Baez. “They were all sophisticated investors who had extensive knowledge in investment. And all of them basically got up there and claimed that it didn't matter what they read and signed, they still didn't know, even though they were repeatedly told.”
Put another way, the hedge fund documents that investors sign “provide legal cover for a whole range of sketchy activity,” says a due diligence expert and whistleblower who investigated Platinum for several years.
The jury, however, did find that in trying to solve its cash problems, Platinum had stepped over the line into criminality and rigged a 2014 bond vote at Black Elk so Platinum could get the proceeds from an asset sale at the company.
To get the money, Platinum first needed to get the majority of Black Elk bondholders to agree to an amendment of the bond covenants — a hard sell since those investors were senior in the event of a bankruptcy.
Platinum was also a Black Elk bondholder, but its votes couldn’t be counted in the vote because of its ownership stake. According to the covenants, bonds held by “any person indirectly controlling or controlled by or under direct or indirect common control with” Black Elk would not be considered.
It was called the affiliate rule.
And so, to ensure the outcome it wanted, Nordlicht transferred a chunk of Platinum’s bonds to another entity called Beechwood, the reinsurance company set up in 2013 by a group including Nordlicht and Huberfeld. Beechwood ended up voting for the bond amendment, which ensured its passage.
The defense’s main argument was that Beechwood had been set up entirely legally as independent of Platinum, a structure that made the votes legal. But in a recent appellate brief, prosecutors claim that “contemporaneous email correspondence makes clear that Levy, Nordlicht, and their co-conspirators were deeply involved in the execution of the bondholder vote and ensuring the success of the scheme.”
The jury agreed with prosecutors and convicted both Levy — who had been in charge of the Black Elk position and had taken on an additional job at Beechwood overseeing investments during the crucial time period — and Nordlicht of three counts of securities fraud.
But when the verdicts were announced after the July 4 holiday, Cogan had an ominous warning: “It is not over yet,” he said.
As the trial wore on, prosecutors were continually stunned by Cogan’s behavior. At one point he snapped at Assistant U.S. Attorney Patrick Hein, who’d suggested that Nordlicht had labeled an email “attorney-client privilege” to avoid disclosure. Cogan abruptly asked, “Have you ever been in private practice?” (Hein answered that he had.)
Cogan also took Assistant U.S. Attorney Elbert to task for assuming the fund could not recover, telling her she needed to have an expert testify to that claim “before you put somebody in jail.” Indeed, both Cogan and Baez suggested that the Platinum investors’ complaints more properly belonged in a civil court, not a criminal one where, Baez pleaded with the jury, the ultimate result was not just a monetary settlement of a contract dispute. “We’re talking about human lives,” he said.
For his part, Baez also spent a good part of his summation taking prosecutors to task. “I'm going to show you lies told to you by the government, lies to try and steal the lives of these men,” he said, arguing that a conviction in such a big case could be a “career maker.”
Prosecutors objected to what they termed Baez’s ad hominem attacks and asked the judge for an instruction to the jury that the government was not on trial — just as he had done in his previous trial, that of drug kingpin Joaquín (El Chapo) Guzmán. But in another blow to prosecutors, Cogan declined.
Baez, for one, says he wasn’t surprised when the judge made his post-trial rulings overturning the Levy verdicts and asking for a new trial for Nordlicht. But, he says, “you always wonder, is the judge brave enough to do what he thinks is right?”
Prosecutors may not have been surprised either — they aren’t talking — but they quickly appealed the decision, pointing to something of a contradiction: Cogan had found insufficient evidence to overturn Nordlicht’s conviction, but by granting the man’s motion for a new trial, the judge was claiming the evidence was insufficient.
Antonia Apps, a former prosecutor in the Southern District of New York who is now a partner with Milbank, says it seemed that Cogan “was concerned that the government’s evidence did not firmly establish that Nordlicht knew he wasn’t complying with the affiliate rule.”
“The government argued that Nordlicht’s statements suggesting he thought he was complying with the rule were merely an attempt to create a favorable paper record, but the district court [Cogan] found the evidence insufficient to show that Nordlicht was dissembling,” she says.
Former prosecutors say that while the judge’s ruling is highly unusual, so is the government’s appeal of it — if only because those prosecutors will have to appear before Cogan again.
“This is basically the Department of Justice saying, ‘Judge Cogan abused his discretion. He did not fairly analyze the evidence, and he did not properly respect the jury's decision,’” says attorney Nasson.
A decision from the Second Circuit Court of Appeals could take more than a year — and may thwart outstanding cases, including the SEC’s civil fraud case against Platinum that has been pending the outcome of the criminal trial. Even if the convictions are ultimately upheld, some of the defense attorneys doubt that Cogan will ever send Nordlicht or Levy to prison.
For the investors, whistleblowers, and investigators, the outcome is demoralizing.
“It underscores how incredibly difficult it is in America to prosecute a white-collar case, no matter how obvious it may seem to the investment community,” says the investigator who spent years looking into Platinum. “If a charge can’t stick on these guys, no charges can stick on anyone.”