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7 executives of Platinum Partners charged with US$1 bil fraud
By Michelle Zhu / theedgemarkets.com.sg | December 21, 2016 : 3:36 PM MYT
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SINGAPORE (Dec 21): Back in November 2013, The Edge Singapore reported a US-based hedge fund called Platinum Partners, and entities linked to it, had agreed to provide some US$560 million ($809 million) in funding to Asiasons Capital (now known as Attilan Group), Blumont Group and LionGold Corp in August, September and October that year.
In the story “Was Black Elk the black swan that sank Asiasons, Blumont and LionGold?”, it was also reported that a company called Black Elk Energy Offshore Operations LLC, which is controlled by Platinum Partners and its affiliates, tried to sell Attilan a 27.5% stake in the company for a total of US$171.65 million.
(See: Was Black Elk the black swan that sank Asiasons, Blumont and LionGold?)
The Edge Singapore reported that Black Elk was facing difficulties at that point in time. The previous year, an explosion and fire on one of its platforms in the Gulf of Mexico had killed three workers and led to multiple civil suits. Black Elk was also losing money, and its liabilities exceeded the value of its assets. Platinum Partners held an 84% stake in Black Elk for which it is likely to have paid about US$100 million. Yet, its proposed deal with Attilan implied a valuation of US$625 million for Black Elk.
Meanwhile, the Platinum Partners Liquid Opportunity Fund, as well as two other parties linked to the hedge fund group, were going to spend US$162 million to buy 180 million new LionGold shares at $1.1097 each and 135 million new warrants at two cents each.
Separately, Blumont was meant to issue some US$200 million worth of convertible bonds to Platinum Partners.
All in, the three Singapore-listed companies were poised to receive a total of US$560 million from Platinum Partners and its affiliates. That was equivalent to almost half the purported asset size of the hedge fund group.
But the planned investments never took place. On Oct 4, 2013, shares in Attilan, Blumont and LionGold crashed spectacularly, wiping off a combined $8 billion off their market value.
This Monday, Platinum Partners’ co-founder Mark Nordlicht and six other associates, formerly and presently affiliated with the fund, were charged in Brooklyn, New York, for defrauding over 600 investors. They were accused of inflating the book value of unprofitable oil projects to make the fund’s performance look better in what the government called a US$1 billion fraud and a "Ponzi-esque" scheme.
Mark Nordlicht, 48, founder and CIO of Platinum; David Levy, 31, co-CIO of Platinum; Uri Landesman, 55, former managing partner and president of Platinum; Joseph SanFilippo, 38, CIO of Platinum’s signature hedge fund; and Joseph Mann, 24, a member of Platinum’s investor relations and finance departments, have been charged with several counts of fraud occurring between 2012 and 2016, including wire fraud conspiracy for defrauding investors through, among other things, the overvaluation of their largest assets as well as the preferential payment of redemptions.
Together with Daniel Small and Jeffrey Shulse, Nordlicht and Levy were also indicted over separate fraud charges pertaining to defrauding Black Elk’s independent bondholders from 2011 to 2016.
Small, 47, is the former managing director and co-portfolio manager of Platinum, while Shulse was previously Black Elk’s CEO and CFO.
At one time, Platinum Partners had reported annual average returns of more than 17%. But on Monday, federal prosecutors in Brooklyn say the $1.7 billion hedge fund’s industry-beating returns were based on lies.
In reality, they were the result of the overvaluation of the fund’s largest assets in what US attorney Robert Capers calls “one of the largest and most brazen investment frauds perpetrated on the investing public” – earning Platinum more than $100 million in fees.
Capers told reporters that fund has been exposed to hold “no more value than a tarnished piece of cheap metal”.
So what has become of Black Elk? In 2014, the company sold its main assets to Houston-based Renaissance Offshore LLC for US$149 million, according to Reuters. Most of the proceeds went to a Platinum Partners subsidiary.
Black Elk then sold much of its remaining assets to Northstar Offshore Group LLC, a Houston company in which Platinum Partners is a substantial investor. These sales helped Platinum Partners and its investors earn a modest profit on their investment in Black Elk.
On June 27, the Associated Press reported that the civil suits brought against Black Elk for the 2012 fire were settled for an undisclosed sum. However, criminal charges will still be heard in January next year.
(See also: US hedge fund that dealt with Asiasons, Blumont, LionGold files for bankruptcy)
(See also: US hedge fund that dealt with Asiasons, Blumont and LionGold faces scrutiny)
