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Hedge fund founder and CIO among seven charged over USD1bn fraud

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Seven defendants, all formerly affiliated with USD1.7 billion New York-based hedge fund Platinum Partners, have been charged in connection with an alleged USD1 billion investment fraud.

The indicted individuals are: Mark Nordlicht, the founder and chief investment officer of Platinum; David Levy, the co-chief investment officer of Platinum; Uri Landesman, the former managing partner and president of Platinum; Joseph SanFilippo, the chief financial officer of Platinum’s signature hedge fund; Joseph Mann, a member of Platinum’s investor relations and finance departments; Daniel Small, a former managing director and co-portfolio manager of Platinum; and Jeffrey Shulse, the former chief executive officer and chief financial officer of Black Elk Energy Offshore Operations. 
 
Nordlicht, Levy, Landesman, SanFilippo and Mann are charged with securities fraud, investment adviser fraud, securities fraud conspiracy, investment adviser fraud conspiracy and wire fraud conspiracy for defrauding investors through, among other things, the overvaluation of their largest assets, the concealment of severe cash flow problems at Platinum’s signature fund, and the preferential payment of redemptions. 
 
Nordlicht, Levy, Small and Shulse are charged with securities fraud, securities fraud conspiracy and wire fraud conspiracy for defrauding Black Elk’s independent bondholders through a fraudulent offering document and diverting more than USD95 million in proceeds to Platinum by falsely representing in the offering document that Platinum controlled approximately USD18 million of the bonds when, in fact, Platinum controlled more than USD98 million of the bonds.
 
The charges were announced by Robert L Capers, US Attorney for the Eastern District of New York; William F Sweeney, Jr, assistant director-in-charge, Federal Bureau of Investigation, New York Field Office (FBI); and Philip Bartlett, inspector-in-charge, US Postal Inspection Service, New York division (USPIS).
 
“As alleged, Nordlicht and his cohorts engaged in one of the largest and most brazen investment frauds perpetrated on the investing public, earning Platinum more than USD100 million in fees during the charged conspiracy. 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. 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,” says Capers.
 
“The charges and arrests announced today reflect our steadfast commitment to holding accountable hedge funds on Wall Street who rip off investors for personal gain.”  
 
“This case shows how several members of this firm allegedly manipulated and lied to investors about the health of the investments they were making, and then plotted ways to cover up their actions. The FBI and our law enforcement partners do all we can to stop these schemes and to keep fraudsters from stealing from investors, but we can’t do it alone. We need people to call us when they see things that don’t add up, or don’t make sense,” says Sweeney.
 
“These Platinum Partners employees devised a scheme to lure investors to funds they managed knowing the funds were insolvent and would not return the high yields they claimed. Postal Inspectors will never tolerate unfairness in the market and will vigorously pursue and bring to justice anyone who breaks the law, ensuring there is an honest and secure trading environment for investors,” says Bartlett.

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