Top executives of New York-based hedge fund manager Platinum Partners were arrested and charged with running a US$1 billion fraud.
Federal prosecutors said the case was “like a Ponzi scheme” as its largest investments lost much of their value, Reuters reports.
Led by Mark Nordlicht, Platinum was known for years for producing exceptionally high returns – about 17 percent annually in its largest fund – by taking an unusually aggressive approach to investing and fund management, the news agency said.
Nordlicht, Platinum’s founding partner and chief investment officer, was arrested on Monday at his home in New Rochelle, New York.
Federal prosecutors accused him and six others of participating in a pair of schemes to defraud investors.
“The charges … highlight the brazenness and the breadth of the defendants’ lies and deceit,” Brooklyn US Attorney Robert Capers told reporters.
Capers said the case was one of the largest and “most brazen” investment frauds ever and Platinum was ultimately exposed to have “no more value than a tarnished piece of cheap metal”.
The US Securities and Exchange Commission announced parallel charges on Monday against the same executives and two Platinum entities for similar civil fraud charges.
A 48-page criminal indictment said since 2012, Nordlicht and four other defendants defrauded investors by overvaluing illiquid assets held by its flagship Platinum Partners Value Arbitrage funds, mostly troubled energy-related investments.
This caused a “severe liquidity crisis” that Platinum at first tried to remedy through high-interest loans between its funds before selectively paying some investors ahead of others, the indictment said.
“So to some extent, there is a Ponzi-esque aspect to this scheme,” Capers said.
Founded in 2003, Platinum until this year had more than US$1.7 billion under management, with more than 600 investors, authorities said.
Some of those investors came from the same New York-area Jewish community as Nordlicht and other Platinum executives.
They have included a charitable trust set up by day-trading pioneer Aaron Elbogen; the Century 21 Associates Foundation, led by department store executive Raymond Gindi; and the SFF Foundation, a non-profit controlled by the Schron family, known for its real estate investments.
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