Offering frauds are a key staple of SEC Enforcement and of federal prosecutors. While there are numerous variations of these frauds, in many instances the insiders are trying desperately to continue what was once a solid business. That was apparently driving force in the Platinum Partners hedge fund. U.S. v. Nordlicht, No. 16-cr-640 (E.D.N.Y. Verdict July 8, 2019).
Charged in the case were: Mark Nordlict, co-founder of the fund, David Levy, co-investment officer and Joseph SanFilippo, chief financial officer of the Value Arbitrage fund. The charges included multiple counts of conspiracy, wire and securities fraud. Mr. Nordlicht and co-defendant David Levy were found guilty of securities fraud, conspiracy to commit securities fraud and wire fraud conspiracy. The two men were acquitted on five other charges. Mr. SanFilippo was acquitted on all charges.
Prior to the events that spawned the fraud, Platinum Partners enjoyed years of some of the best returns in the hedge fund industry. The firm’s flagship fund, Value Arbitrage, had average gains of 17% through 2015. Yet the fund was heavily invested in oil and gas interests that underperformed. As the fund tottered on the brink of collapse, executives lied to investors, according to the court papers, in an effort to stave off withdrawals and raise new capital. The result was a billion-dollar fraud, according to the government.
The date for sentencing was not announced.