Platinum Partners: Founder, Six Others Charged In $1B Securities Fraud Case

Employees of a troubled NY hedge fund, Platinum Partners, were arrested Monday on charges of participating in a $1 billion fraud.

Seven executives of bankrupt hedge fund Platinum Partners have been arrested after a sweeping indictment from a federal grand jury in Brooklyn accused the firm of overstating the value of two major oil holdings and using proceeds from new investments to pay redemptions by disenchanted clients. It produced exceptional profits for investors, with its flagship fund generating an average return of 17% since it started, Reuters has reported. The indictment lists nine co-conspirators without naming them. But since at least 2012, federal prosecutors allege, Nordlicht and other company executives lied to investors about the profitability of the fund and took out high-interest loans to mask their dismal results. They were "engaged in one of the largest and most brazen investment frauds perpetrated on the investing public", said Brooklyn U.S. Attorney Robert Capers. The Firm manages multiple funds in a variety of uncorrelated strategies and sectors.

The co-defendants include David Levy, the co-chief investment officer, and Uri Landesman, the former president of Platinum's investment fund, prosecutors said.

Prosecutors cited company records that documented the financial crisis hidden from investors.

Nordlicht then forwarded the email exchange to Landesman, according to the indictment. "It seems like we make some progress and then [redemptions] are relentless nearly".

Later, he sent another email to the unnamed conspirator.

The executives also allegedly misled investors about the cash crunch.

A spokesman for Platinum declined to comment to media outlets, and lawyers for those charged couldn't immediately be reached for comment.

In August, a Cayman Islands court ordered that an outside expert unwind the so-called offshore versions of its flagship hedge fund, Platinum Partners Value Arbitrage, which, along with the firm, is also being investigated by US authorities.

Though the alleged securities fraud is large, it's well below the as much as $20 billion investment scam Madoff ran for decades until his operation collapsed in December 2008.

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