Hedge Fund Execs Charged in Possibly Biggest Fraud Since Bernie Madoff

Chris Gaetano
Published Date:
Dec 19, 2016

Three top executives from hedge fund firm Platinum Partners were arrested and charged today for running what prosecutors believe is a $1 billion fraud, the biggest since Bernie Madoff's multi-billion dollar Ponzi scheme, according to The Wall Street Journal. Specifically, authorities have charged Chief Investment Officer Mark Nordlicht, Co-Chief Investment Officer David Levy, and former President Uri Landesman with securities fraud, investment adviser fraud and conspiracy.

The fund, which the Journal said catered mainly to the observant Jewish community, specialized in unconventional investments like loans to bankrupt companies and esoteric pharmaceutical stocks. While the fund boasted that it had one of the steadiest performance track records in the industry with no down years for its funds, prosecutors said they instead inflated asset values and pocketed the difference, fabricating performance figures to maintain the illusion of stability.

The reality, according to prosecutors, was that the hedge funds were near collapse. Reuters said that this practice eventually created a severe liquidity shortage at the firm. While at first they tried to address the matter through high-interest loans between its funds, it eventually opted to start selectively paying some investors ahead of others, a classic Ponzi scheme feature. Eventually Platinum announced that it was going to liquidate its hedge funds but would be unable to pay back investors' money before applying for bankruptcy protection. The liquidation of its two main funds in the Cayman Islands, according to the Journal, was a last-ditch effort to stave off a final reckoning.

The indictment said that the executives knew it was coming anyway, though, and considered fleeing to Israel. They instead elected to remain in the U.S. and continue extolling the virtues of their fund, which they kept insisting was perfectly fine.

The case is U.S. v. Nordlicht et al, U.S. District Court, Eastern District of New York, No. 16-cr-640.

Click here to see more of the latest news from the NYSSCPA.