OK. Good morning everyone and thank you
for being here today.
My name is Rob capers, I'm the US
Attorney for the Eastern District of New
York. I'm joined here today to my left by
William Sweeney Jr. He's the Assistant
Director in Charge of the New York
office of the FBI.
He's got his Assistant Special Agent in
Charge John Cazale to his left. To his
left is Thomas Boyle. He's the Assistant
Postal Inspector in Charge for the New
York Office of the Postal Inspection
Service. To his left is Andrew Ceresney.
He's the Director of Enforcement for the
SEC. Today we're announcing the arrest of
seven individuals associated with a New
York based hedge fund called Platinum
Partners. The defendant Mark Nordlicht,
Platinum's founder and Chief Investment
Officer, and co-defendant David Levy,
Platinum's co-Chief Investment Officer,
are both charged together with three other
co-defendants, with carrying out of 1
billion dollar scheme that defrauded
Platinum's investors. Beginning in 2012
and continuing through this year.
Nordlich and Levy are also charged
with together with two other
co-defendants with a scheme that
defrauded public bondholders. Now the
schemes are described in an eight count
indictment that was unsealed a short
time ago.
Director Ceresney will also discuss
the filing of a civil complaint by the
SEC and their parallel investigation.
But let me start by giving you some
background on the defendants. Nordlicht had
primary responsibility for the fund's
investment decisions and valuation of its
assets. Levy, who functioned as Nordlicht's
second-in-command, also drove
investment decisions and managed the
hedge fund's investment in Black Elk, an
Oil company that was one of Platinum's
largest assets. Uri Landesman was Platinum's
president and managing partner of
platinum's premier fund, the Platinum
Partner's Value Arbitrage Fund, or PPVA.
Joseph Sanfilippo was PPVA's Chief
Financial Officer. And Joseph Mann was a
Platinum employee,
who worked in their marketing department. And
these defendants have all been charged
for their participation in a 1 billion
dollar investment scheme. In short, these
defendants defrauded Platinum's
investors by falsely portraying that
their flagship -- hedge fund, PPVA was
thriving, when in fact was not. And by
overvaluing its assets, when in reality the assets
were doomed. And the fun was a sinking
ship.
Nevertheless between 2012 and 2016 Platinum
collected more than a hundred million
dollars in fees from the fund, based on
their inflated valuations. Now the
defendant, Daniel Small co-managed
Platinum's large investment in a company
named Black Elk. Black Elk Oil, along with Levy, and was
was also a member of Black Elk's
board of directors. Co-defendant Jeffrey
Schulse worked at Black Elk as its Chief
Financial Officer and later as its Chief
Executive Officer. Small and Schulse are
charged together with Nordlicht and Levy
with the second scheme which was a
scheme to defraud holders of Black Elk's
bonds. By beginning with the investment
scheme Platinum created the PPVA fund
in 2003. And every year since then,
through 2015, it reported on average
positive annual returns of 16.8 percent.
And not a single down year. This past
March, Platinum reported to the SEC that
its funds had 1.7 billion in assets
under management, or AUM, with 1 billion
of those assets in the PPVA fund. And
Platinum told investors that they could
redeem their investments from PPVA every
quarter, upon 60 days notice. Yet as early
as 2014 PPVA found itself in a cash
crunch, struggling to pay investors
redemptions, despite reporting in AUM of
nearly 1 billion dollars. Today
PPVA is in liquidation. So what happened?
As I said a moment ago, PPVA had a large
stake in the oil company Black Elk.In
November of 2012, a
Black Elk oil platform exploded, killing
three workers. Consequently Black Elk's oil
production went dramatically down it and
couldn't pay its bills. But that didn't
stop Platinum from continuing to
overvalue Black Elk at more than 280
million dollars.
Almost 40% of PPVA's assets. That
overvaluation of Black Elk came at a time
when PPVA was already struggling to pay
its investors redemptions. With PPVA so
heavily invested in oil, and specifically
and unprofitable oil companies, the defendants--
the defendants knew that they were in
too deep. But instead of changing course,
they just repackaged their oil and gas
portfolio under different names and kept
valuing those assets in the hundreds of
millions of dollars. They did this even
after the price of oil plummeted in late
2014.
Despite--and despite the price of oil
dropping from a hundred and five dollars
per barrel in 2013 to a low of 37
dollars per barrel in 2016, the
defendants still reported PPVA's oil
assets as worth between
184 and 245 million dollars, as a
December of last year. And what did those
high valuations get Platinum? Hefty fees
that they collected from the fund, which
further diminished PPVA's liquidity. The
defendants reacted to this cash crunch
by making high interest rate loans among
their various funds and selectively
paying investors redemptions, contrary to
PPVA's governing documents. And they also
hid these desperate measures from their
investors. Now if you look to my right,
your left, the first board shows just
what I've summarized. And if you can see the
board on the top shows PPVA in the
middle and the various funds, and how the
monies move through the funds through a
series of high interest loans and other
things, all to keep PPVA afloat. At the
bottom you can see that while Platinum
said PPVA's
AUM was going up year after year, in that
same period of time, the corresponding
price for barrels of oil went down. So
as you can see, Platinum's valuation of
their AUM didn't make sense, or square
with the fact that oil continue to
plummet. Now...Okay...
Now...
Now this is board number two. And number two
if you look at this board, this board
highlights the two stories related to
the financial health of PPVA. There was
the truth at the top, which was they were
in dire straits. And you can see that
they talked openly amongst themselves. And at
the bottom is the lie that they spun to
investors. So beginning with the first
email in the top row, from March of 2014 from Nordlicht
to Small, Nordlicht discusses PPVA's
illiquidity, or cash crunch, how the end of
the fund could actually be near, and how
they admitted that their mismanagement
of Black Elk or quote unquote the
Black Elk position was the blame.
Now in the next email on the bottom, from
Nordlicht to Sanfilippo, in April of 2015
Nordlicht asked if any new investors came in
and said, and I quote, the next use of
capital for PPVA should be to selectively
payback one Platinum investor and two
partners, including Landesman. And then
there's a December 2015 email between
Nordlicht and Landesman, which is the
third email, Nordlicht forwarded Landesman his
email between Landesman--
I'm sorry Nordlicht and a co-conspirator-- in
that email Nordlicht talks about how his
wife urged him to fly to Israel, if he
couldn't quote, "get a loan" unquote to say
PPVA. Landesman replied, and I quote, you
should get on the flight if there is no
loan, probably even if there is. And they
spoke about how very rough and
a shame it would be to share this with clients and employees,
that being the demise of the fund.
and Landesman hoped that Nordlicht's girls would re-acclimate nicely
to life outside of the country in Israel.
And so those are the three emails that
talk about the truth about how dire the
straits were. And in the bottom is the story
that they spun to investors. And you can
see in that bottom email in February
2016 Landesman,
copying Mann, emailed an investor and said
quote "the is fund sound" "new structure is
ideal" and "Mark", meaning the defendant
Nordlicht, "is really energized." Now if that
investment scheme wasn't enough, as I
mentioned before, there was a second
scheme. A fifty-million-dollar scheme to
defraud Black Elk's
bondholders by selling certain of
Black Elk's assets and diverting the
proceeds of that sale to Platinum itself
instead of to the bondholders who had
priority and being paid from those
proceeds over Platinum's interests. And
now how they do that? In short, the defendants
rigged a bondholder vote in mid-2014 by
lying to them and withholding the fact
that Platinum interest owned a majority
stake in the bonds and therefore
a majority vote on the issue.
Notably Platinum was required to
disclose its bond ownership to its other bondholders
and to exclude them from the
vote tally. However, that fact was never
disclosed, the vote passed, and Platinum
successfully diverted the proceeds from
that sale to themselves, instead of to
the bondholder. And if you look at the third
board, it lays out the scheme and shows
how once again the defendants spoke openly
to each other and lied to their investors,
in this case their bond holders. And as you
can see on the left, there is a July 2014 email
from Small to Nordlicht and Levy, all
co-conspirators in this crime, and Small
gives a breakdown of the total number of
bonds owned or controlled by Platinum. And
And you see on the bottom in red dots it's some
$98 million dollars in bond holdings.
Then you see on the right
how to defend it lied to the bondholders
about the number of bonds Platinum
actually controlled. And that on the
right captures the sum and substance of a letter
that was issued to the bondholders. And then
the bondholders in that letter where
they solicited their vote, the defendants
disclosed Platinum's control of only $18.3
million in bonds falsely
omitting the extra $80-plus million in
dollars and bond holdings
they actually controlled. And driving
home that lie, they said that other
than those $18.3 million in bond holdings, no one
else held under common control
of Platinum of any of those bonds. And
with those bonds, the defendants made sure
only $18.3 million of
their bond holdings were barred from
voting, and that the rest, that some $80
plus million bond holdings, cast their
vote in favor of Platinum taking the
proceeds. And in the email below in
August of 2014 where Schulse emailed Nordlicht,
Levy, and Small, they celebrated the fact
the vote had passed and they were able to collect
those proceeds. Now the charges relating
to these two schemes highlight the
brazenness and the breadth of the
defendants' web of lies and deceit.
These defendants name their fund after a
valuable and precious precious metal and
promised handsome annual returns to
its investors, returns that were befitting
of the 'platinum' designation. However, that
tangled web of lies and deceit became
even too much for the defendants to handle
and Platinum's house of cards came crashing
down earlier this year. Sadly, it was only
at that moment when the fund's investors
and the world finally got to see that
Platinum Partners held no more value than
a tarnished piece of cheap metal. Now in
conclusion, I'd like to thank the FBI and
the Postal Inspection Service for their
partnership an incredible investigative
work performed by the agents and postal
inspectors assigned to this case. I'd
also like to thank the SEC for their
continued partnership and for the
incredible work that their staff
attorneys did as part of this matter. And
finally I'd like to congratulate the
AUSAs who worked on this case. They're to my
right
AUSAs Winston Paes, Lauren Elbert, Alicyn Cooley,
and Sarah Evans, for their superior
work on this matter.
At this time I'll step aside and I'll call
to the podium Assistant Director in
Charge Bill Sweeney.
[William Sweeney] Good morning. As Mr. Capers just outlined,
for you
this case shows how several members of the
Platinum Partners allegedly manipulated
and lied to investors about the health
of investments they were making and then
plotted ways to cover up their actions. A
few things I'd like to highlight for
everybody here: emails detailed in the
indictment show these co-conspirators
discussed how to hide their lies from
investors one calling everything they
did to cover up their losses as the
quote "big stew".
When investigator--when investors
started asking for the returns that
would do to them on their own investments,
everyone started to panic.
That's when they went in search of new
money and new investors whom they also
lied to about the solvency of the
business. And then when the subjects in
this case realized they couldn't keep
hiding the fact that there was no money
they decided the easiest way out, was to
book flights out of the country. A
plan that was about as solid as their
fraud scheme to begin with. People who
invested their money did so hoping to
make a profit from Platinum Partners,
they didn't hand over large sums of cash
so the subjects could -- manipulated lie and
cheat them out of it.
The bureau and our law enforcement
partners work hard and we worked
together to stop these schemes and keep
fraudsters from be able to steal from
investors. But the people cooking the
books are very savvy at keeping their
actions hidden from view. This case
should prove that eventually the money
will run out, and those doing these types
of frauds will get caught. There is one
thing I'd like to stress, we do need
people who see things, and when they
don't make sense, or when they're getting
the runaround, to call us. What an
investor seas may be nothing, or as
illustrated in this case it could be a
fraud scheme resulting in millions of
dollars in losses for people who can't
afford to lose their money.
It is always worth a call. I'd like to
thank our partners in this, and so many
other cases, US Attorney Rob Capers the
Assistant US Attorneys to my right,
Winston Paes, Alicyn Cooley, Lauren Elbert,
and Sara Evans. United States Postal
Inspection Service Assistant
Inspector In-Charge Tom Boyle and the
Securities and Exchange Commission
Enforcement Director Andrew Ceresney.
I'd also like to congratulate the
investigative team who are standing off
in the back who did an outstanding job of
putting this case together,
investigators Amber Jordan with the
Postal Inspection Service and FBI
Special Agents Craig Minsky, Julia Motto
and Supervisory Special Agent Tracie Razzagone
Your efforts did make a
difference. Thank you.
[Robert Capers] Next up will be Assistant a Postal
Inspector In-Charge Tom Boyle. [Tom Boyle] Thank you, Rob.
Good morning.
As one of the nation's oldest federal law enforcement agencies,
postal inspectors have a long proud and
successful history of fighting criminals
who misuse our nation's postal system to
defraud consumers and investors.
Postal Inspectors as well as our
partners here today from the US Attorney's
Office, the FBI and the SEC, have an
undaunted believe that there should be a
safe, honest, and fair playing field for
all investors, and not just for those who
have the means, expertise and access to
circumvent the system. This investigation
is emblematic of this commitment. The
crimes of these individuals from
Platinum were born out of nothing more
than deceitfulness and the continuation
of the contempt to fair
investment rules and regulations
governing the fair market. As alleged in
the indictment, defendants fraudulently
overvalued some of the funds level three
assets in order to boost performance
numbers, attract new investors, retain
existing investors, and extract high management
fees for themselves. From approximately
2012 through 2014 Platinum Management
received more than $91 million in
management and incentive fees, while
making misrepresentations and omissions
to investors and potential investors,
regarding the status of the fund. To make
matters worse, these individuals
selectively chose who would receive funds
from their redemption
requests as a way to further control what
is paid and to whom. When a redemption ,
request was made, they either paid it
with a loan or other companies they controlled
at a high interest rate --passing those
costs on to other investors. Some of -- Some
people believe this is a victimless
crime, only impacting trading houses that
have the means to to take a loss or
those who are wealthy; but this crime
touches many victims, including
people in this room.
The first being the average investor,
like you or me who dream of financial
independence. Second the economic markets
are damaged and left very unstable when
stock prices become manic based on these
fraudulent investments. And companies as
well as their investors lose millions.
These losses can have a rippling affect
from job security to the instability of the
financial well-being of the innocent
investors. What troubles me
about this case is a total disregard and
recklessness of the law, if you think
about it, these individuals manipulated
investments they were entrusted with the
investors. The money that the investors gave
them with the trust, they took full
advantage of it and they took it for
themselves.
Postal Inspectors and the investors--
Postal Inspectors want the investors to know
while these are no guarantees when investing,
will award you profits or money or
independence, that we are here to protect
the investors.
We work with the FBI the SEC and the US
Attorney's Office and we're undaunted
to protect your investments.
Thank you. Thank you, Rob. [Rob Capers] Next up will
be a SEC Director of Enforcement Andrew Ceresney.
[Andrew Ceresney] Thank you, Robert. Lower this a bit.
Today the SEC filed an enforcement
action charging Platinum Management one
of its principles, Mark Nordlicht and
seven other defendants with a wide range
of fraudulent practices at Platinum
Hedge Funds, which had over $1.6 billion
dollars in assets under management and
over 600 investors. We allege that this
scheme included overvaluation of illiquid
fund assets improper commingling of
monies among funds, improper preferential
redemptions, concealment of the funds'
liquidity problems, and a scheme to route
money to Platinum funds by defrauding
another company's investors. In brief, we
allege that this scheme centered around the
flagship Platinum fund – Platinum Partners
Value Albert Arbitrage fund, called PPVA, that
had, over time, weighted its investments
heavily in illiquid assets. Our complaint
alleges that the PPVA fund began
experiencing liquidity problems as early
as 2012 and that those problems kept
growing as investors look to redeem
their investments.
Despite the high-flying returns that
Platinum was reporting to investors in PPVA
of an average of 17 percent
annually from 2003 to 2015— and which were
largely comprised of unrealized gains in
illiquid investments— PPVA found itself
without sufficient catch to pay the
redemptions. In a candid email from June
16, 2014, Nordlicht admitted to Uri Landesman,
a managing partner of PPVA and a
co-defendant today's action, the dire
condition the fund was in. He wrote:
"It can't go on like this or practically
we will need to wind down. This is not a
rhetoric thing, it's just not possible to
manage net outflows of this magnitude.
I think we can overcome this, but this is
code red, we can't go on with the status
quo... ... We can't pay out 25 million dollars
in [redemptions] per quarter and have five come in."
Our complaint alleges that this
candid opinion of the dire situation was
not shared with fund's investors, or the
prospective investors they were pitching
to and obtained additional funds from.
Also hidden from investors was that one
of PPVA fund's
most highly valued assets of the last
few years, an oil production company
called Golden Gate Oil LLC, was significantly
overvalued. At the end of 2014, PPVA had
Golden Gate valued at $140 million
dollars.
However, we allege that in September of
2014, PPVA entered into a private
transaction in which it obtained complete
equity ownership of the company from its
partner at enterprise value of $6.2
million dollars – about a hundred thirty
four million dollars less than where that
... investment was being valued
on PPVA's balance sheet. Desperate to
manage the cash flow problem caused by the
ever-increasing redemptions an
overvalued illiquid investments, instead of
leveling with investors, we allege that
Nordlicht and his co-defendants opted for a
number of improper measures: First as
redemption requests came in, and the
fund's liquidity problems prevented full
payment of those requests, we allege that
Nordlicht and some of the other
defendants worked to hide the depth of the
problems from investors, concealing the
liquidity problems while attempting to
raise money from new investors. They also
paid certain redemption requests while
failing to pay others, improperly
favoring certain investors. Second, we
alleged that the defendants transferred monies
from one Platinum fund to another
contrary to the offering documents,
treating the funds as if they were
interchangeable in order to stave off
shortfalls in the PPVA fund. Defendants
also caused the funds to take out high-interest
loans to meet certain
redemption requests and other cash needs,
without disclosing the nature and
purpose of these loans to investors. And
third, we alleged the defendants
improperly extracted money out of a
portfolio company at the expense of the
company's non-Platinum investors.
According to the complaint, the
defendants hit their control over a
majority of publicly-traded notes in one
of their portfolio companies, Black Elk
Offshore Operations LLC, while arranging
for noteholders to vote on yielding
their payment priority to preferred
shareholders. Platinum affiliates
...constituted the vast majority
of the preferred shareholders, and that
rigged vote enabled Platinum entities to
benefit from about a hundred million
dollars that Nordlicht and is
co-defendants had Black Elk distribute to
the preferred shareholders, there by
defrauding the non-Platinum investors in
that portfolio company. In addition to
charging responsible individuals with
fraud, the Commission today is also
seeking a temporary restraining order to
install a receiver over the PPCO fund
and another fund, the Platinum Partners
Liquid Opportunity Fund, which remains
under Mr. Nordlicht's control. PPVA has been
in liquidation in the Cayman Islands, and
just this Friday the court there
appointed the interim liquidators to be
the joint official liquidators of the
PPVA master fund, so a receiver over
that fund is not necessary at this time.
Holding hedge fund managers accountable
for their wrongful conduct is critical
to the SEC's mission of protecting the
investing public. Over the years, we have
brought numerous cases against hedge
funds arising from improper valuations,
redemptions, misrepresentations to
investors, and other types of misconduct.
We allege that Nordlicht and the defendants
engaged in many types of misconduct and
abused their abuse their positions of
trust. Through today's action, we seek to
hold them accountable. In closing, I'd
like to thank US Attorney Rob Capers, William
Sweeney from the FBI,
Tom Boyle from the Postal Inspecton
and their teams for their amazing work
on this matter. Their work represents the
best in professionalism, dedication, and
public service. And I thank them for
their close collaboration and
coordination with the SEC on this matter
and on others.
Last I want to recognize the hard work
and dedication of the SEC staff in our
New York office that conducted this
investigation diligently and with great
enthusiasm. Their effort has been
exceptional, and I'm very proud of what
they have accomplished. The SEC personnel
are: Andrew Calamari, Sanjay Wadhwa,
Adam Grace, Jess Velona, Danielle Sallah,
Kenneth Bryne, Janna Berke, and our
litigation team of Kevin McGrath, Neal
Jacobson, and Alistaire Bambach.
Thank you very much.
[Robert Capers] Any questions, folks?
Yes, ma'am? [Reporter] Can you give us a sense of how many investors lost their money. And were they unions? Individuals?
[inaudible]...[Robert Capers] Well I think the victims vary. There are
various people invested in the funds.
There are individuals. There are other
hedge funds, funds of funds who invested
in PPVA. So the victims vary widely.
Yes, sir. [inaudible]
[Robert Capers] I don't know if it would be fair to call
it strictly a Ponzi scheme. There are
multiple layers to the fraud, including
overvaluation, failing to disclose the
...illiquidity of the fund. There
are certain allegations that are laid
out in the indictment that we've
discussed where there were high-interest
loans and new members who came in who
bought into the fund. And that those
monies were used to pay existing people
who were in the funds who were due
redemptions. So to some extent, there is a
Ponziesque portion to this scheme, but
it's only one of ...one part of a
multi-layered scheme. Yes, ma'am....[inaudible]
[Robert Capers] Well I can't speak to what the
liquidation is because there are... there
are proceedings that will deal with
assets on hand and so on and so forth.
I can tell you that we calculate the
loss from the scheme at $1 billion
dollars, based upon the defendant's
representation that there was assets
under management that... in that fund
that amounted to about 1 million...
$1 billion dollars.
Yes, ma'am....[inaudible]...[Robert Capers] I think that they
misrepresented to...to the people in the
fund, where the monies were coming from.
They misrepresented to various people
who were involved with auditing, and so
on and so forth,
how much assets were under management,
were on hand...Yeah....[inaudible]
[Robert Capers] I'm going to let ADIC Sweeney...
[William Sweeney] No. I wasn't trying... I wasn't trying to
reference a tip in this case, just a
general reminder to the public, if you
think something's wrong,
say something. And let the what the pros
in the room try to figure that out
for them, rather than let something
fester like this....[inaudible]
[William Sweeney] No I do not...[laughter]...[Robert Capers] Yes, ma'am....[inaudible]...Ceresney
[Andrew Ceresney] Yeah, we typically don't discuss the
source of the case. We do have an exam
program and they're active in
looking at funds like this, but I'm
not going to talk today about what their
role was...[inaudible]...[Andrew Ceresney] I'm not gonna talk about
what specifically...what's in
there is what we're going to say....[inaudible]...
[Robert Capers] I won't comment on I guess any of the
aspects of that question except to say
that we asked our investigation
continues as the indictment lays out and
that Southern District indictment that
is a matter related to public corruption
this is a securities fraud investigation
which is being which is a separate
investigation
yes sir [inaudible]...
[Robert Capers] Well I can't speak to that what i can
say is as far back as our investigation
which is alleged in the indictment to be 2012
we believe that these defendants
overvalued the value of the fund, misrepresented.
the amounts of
assets under management and and other
things as alleged in the indictment so I
can't say what the original intent was. I
can say what our investigation has
yielded. Yes sir?
[inaudible]...([Robert Capers] Well that liquidation proceeding is
occurring in the Cayman Islands. Our
investigation is the track that is laid
out in our indictment. I think that there
are aspects of that maybe the director
can speak to? You can speak to it? [Andrew Ceresney] We're typically in
touch with the liquidators and so I
think they would be communication with
them and and our team on the matter. [Robert Capers] Yes ma'am? [Inaudible]...
[Robert Capers] I mean actually it's a scheme to
defraud the bondholders, right? Platinum
Partners or there are people who
purchase bonds as a fundraising
mechanism for Black Elk Oil right? And so
there are rules and regulations that
allow for among other things
who should be compensated
first if there are certain assets that
are being sold and in that order the
bondholders have preference over Platinum Partners. What Platinum Partners did is they is
they hatched a scheme to have those
proceeds diverted to them as opposed to
the bondholders who were first in line
to be paid from the proceeds of that
sale and so they tried many things and
finally settled on rigging this
bondholder vote where they did not
disclose to them that they had a
majority holding in the bonds. By their
rules and regulations any preferred
bonds or bonds that were held by
Platinum Partners would be excluded from
the vote and if those folks knew that
they had a majority of them and they
would have known to ensure that those
folks voted that Platinum's entities
didn't have a place in the vote. They
didn't know that so Platinum voted for
the diversion of funds from these
people who were first in line, to them. I just
want to make sure I got that right. [inaudible]...[Robert Capers] Well
I don't guess. What I do is I
rely on what it was for purposes of our
investigation what they represented to
regulators and to their investing public and
that was 1 billion dollars. I won't
hazard a guess what their valued at now
and as the director stated they're in liquidation proceedings. [inaudible]
[Robert Capers] I can't say whether he did or not, but it
sounds like by the terms of the email
that he decided not to. Yes ma'am? [inaudible]...
[Robert Capers] Well there's a restitution component to
this and is a forfeiture component to this.
What we can never promise the investing
public is that we can make them whole
because we don't know how many assets or
how much assets on hand will be
available at the time that there is
either a guilty plea or finding of
guilt by a jury. Thanks everybody happy
holidays to you.
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