Platinum Partners’ founder and two of its flagship hedge funds were charged with fraud by the Security and Exchange Commission (SEC) on Monday.
According to the SEC, Founder Mark Nordlicht and his staff conducted a scheme to “inflate asset values and illicitly move investor money to cover losses and liquidity problems.”
In a parallel action by the US Attorney’s Office for the Eastern District of New York, Nordlicht and several colleagues were arrested Monday on criminal charges for the fraudulent scheme.
According to the indictment, Platinum “overvalued some of [its] assets in order to, among other things, boost performance numbers, attract new investors, retain exiting investors, and extract high management and incentive fees.”
“Investors were repeatedly presented a false picture of the performance of the Platinum funds and their overall liquidity situation,” said Andrew Ceresney, the SEC’s outgoing director of enforcement.
As investors sought redemptions, the hedge funds “engaged in numerous improper measures in an attempt to meet redemption requests, including taking out high-interest rate loans, commingling monies among funds, and raising money from new investors through fraudulent misrepresentations,” he said.
The SEC further alleged that Platinum, a controlling shareholder in Black Elk Energy, colluded with the energy firm to divert almost $100 million from Black Elk to help boost the Platinum funds.
“Nordlicht and others allegedly disregarded their fiduciary duties in systemic fashion and made it appear to investors that the funds were much more valuable and liquid than they actually were,” said Andrew Calamari, director of the SEC’s New York regional office.
In addition to Nordlicht, the SEC also charged co-CIO David Levy, ex-managing director Daniel Small, former managing general partner Uri Landesman, investor relations employee Joseph Mann, Joseph SanFilippo, CFO of a Platinum fund, and Black Elk CFO Jeffrey Shulse.
Platinum Partners was unable to be reached by press time.