NEW YORK, Dec. 19 (UPI) -- Seven executives linked to the New York hedge fund Platinum Partners, including the founder, were arrested Monday on charges connected to $1 billion fraud in a Ponzi-type scheme.
They were charged with securities fraud and investment advisor fraud in an alleged scheme in which executives used new investor money to pay older investors, according to an unsealed indictment.
The U.S Department of Justice accused Platinum Partners of "operating like a Ponzi scheme."
The executives allegedly inflated the value of Platinum's companies to investors "despite clear evidence that the companies were unprofitable and in debt," the indictment said. The executives began relying almost exclusively on new investments and loans between funds to pay out older investors, the indictment said.
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Six current or former Platinum executives were arrested and one was chief financial officer of Black Elk Energy, one of Platinum Partners' largest portfolio companies. Black Elk owned the platform in the Gulf of Mexico that exploded and caused the deaths of three workers and an oil spill in 2012.
Arrested were Mark Nordlicht, a founder and chief investment officer; David Levy, co-chief investment officer; Joseph Sanfilippo, who was chief financial officer; Uri Landesman, the former president; Joseph Mann, a member of its Investor relations and finance departments; Daniel Small, a former managing director; and Jeffrey Shulse, the former CEO of Black Elk Energy Offshore Operations
"Platinum Partners purported to be a standard bearer in the hedge fund industry, reporting annual average returns of more than 17 percent since inception in 2003," Robert L. Capers, United States Attorney for the Eastern District of New York, said in a release. "In reality, their returns were the result of the overvaluation of their largest assets, which eventually led to Nordlicht and his co-conspirators operating Platinum like a Ponzi scheme, where they used loans and new investor funds to pay off existing investors."
The case is one of the biggest Ponzi schemes since Bernard L. Madoff defrauded investors $65 billion and was arrested on Dec. 11, 2008 and sent to 150 years in prison one year later on June 29.
Several government agencies, including the FBI and the United States Postal Inspection Service, investigated Platinum. In June, Murray Huberfeld, a former Platinum executive and the uncle of Levy, was arrested and pleaded not guilty to conspiracy and wire fraud.
After Huberfeld's arrest this summer, agents raided Platinum's New York City offices.
Later, the firm liquidated it flagship fund and filed for bankruptcy protection. The Cayman Islands court liquidated two other funds.
Founded in 2003, Platinum managed nearly $2 billion of investor money at one time. The New York Times reported Platinum executives managed money from prominent families and foundations within the Orthodox Jewish community in New York.
On its website, Platinum Partners claimed to have more than $1.3 billion in assets.
In March 2016, Platinum reported to regulators that it had $1.7 billion in assets under management, including approximately $1.1 billion in gross asset value in Platinum Partners Value Arbitrage Fund and more than $590 million in Platinum Partners Credit Opportunities Master Fund.
PPVA was invested heavily in oil and gas companies, and its value declined as oil prices plummeted, according to court documents. Prosecutors claim Platinum lied to its investors about the value of its assets and misrepresented the performance of the fund.
A spokesman for Platinum declined to comment to media outlets, and lawyers for those charged couldn't immediately be reached for comment.
