(Reuters)
Top executives of New York-based hedge fund manager Platinum Partners were arrested on Monday and charged with running a $1 billion fraud that federal prosecutors said became “like a Ponzi scheme” as its largest investments lost much of their value.
Led by Mark Nordlicht, Platinum was known for years for producing exceptionally high returns — about 17 percent annually in its largest fund — by taking an unusually aggressive approach to investing and fund management, as detailed by a Reuters Special Report in April.
Nordlicht, Platinum’s founding partner and chief investment officer, was arrested at his home in New Rochelle, New York. Federal prosecutors accused him and six others of participating in a pair of schemes to defraud investors.
Prosecutors said David Levy, Platinum’s co-chief investment officer, and Uri Landesman, the former president of the firm’s signature fund, also participated in the scheme, which prosecutors said allowed Platinum to extract more than $100 million in fees based on inflated asset values.
Nordlicht, appearing in court in a checkered shirt and blue jeans, pleaded not guilty to charges including securities fraud and was granted bail by U.S. Magistrate Judge Lois Bloom on a $5 million bond secured by $500,000 cash.
Levy and Landesman also pleaded not guilty Monday.
The U.S. Securities and Exchange Commission announced parallel charges Monday against the same executives and two Platinum entities for similar civil fraud charges.
A 48-page criminal indictment said since 2012, Nordlicht and four other defendants defrauded investors by overvaluing illiquid assets held by its flagship Platinum Partners Value Arbitrage funds, mostly troubled energy-related investments.
This caused a “severe liquidity crisis” that Platinum at first tried to remedy through high-interest loans between its funds before selectively paying some investors ahead of others, the indictment said.
