Home Hedge Funds ‘Greed’ or ‘mistake’? Platinum hedge fund manager’s trial kicks off

‘Greed’ or ‘mistake’? Platinum hedge fund manager’s trial kicks off


REUTERS/Hannibal Hanschke

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  • Small, others allegedly defrauded portfolio co’s bondholders
  • Daniel Small final defendant in case

(Reuters) – The fraud trial of former Platinum Partners portfolio manager Daniel Small began in Brooklyn on Monday, with a prosecutor telling jurors Small helped scam bondholders in a Platinum portfolio company.

Small is the last defendant in the case over now-defunct Platinum Partners, a New York hedge fund that once had around $1.7 billion of assets. Prosecutors say Small schemed with other Platinum insiders to defraud bondholders of Black Elk, a Platinum-controlled oil exploration company, by diverting $70 million from asset sales to Platinum ahead of Black Elk’s 2015 bankruptcy.

A jury convicted Platinum co-founder Mark Nordlicht and co-chief investment officer David Levy of defrauding bondholders in July 2019.

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Assistant U.S. Attorney Nicholas Axelrod said during opening arguments that Small and the Platinum executives were motivated by “greed” to rig a 2014 bondholder vote. The vote allowed Platinum to use funds from Black Elk’s sale of oil and gas assets to pay Platinum investors and insiders ahead of bondholders before the company foundered, he said.

Small’s attorney Seth Levine told jurors that rules about which of Platinum’s bondholder affiliates could vote were so complicated that even the “high powered lawyers” at BakerHostetler and other firms who consulted on it did not see a problem at the time.

“Mistakes are not crimes,” he said.

The alleged scheme is a small part of what prosecutors in 2016 said was a $1 billion fraud on investors.

In addition to the bond scheme, Nordlicht and Levy were accused of overvaluing assets in Platinum’s flagship Value Arbitrage fund. They were acquitted on those charges at trial, as was Joseph SanFilippo, the fund’s former chief financial officer.

Charges against two other defendants were dropped after they completed deferred prosecution agreements. A seventh defendant died while the case was pending.

The case is U.S. v. Nordlicht et al., U.S. District Court, Eastern District of New York, No. 16-cr-00640

For the government: Nicholas Axelrod, Lauren Elbert, David Pitluck

For Small: Seth Levine, Alison Bonelli, Paul Murphy of Levine Lee

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Our Standards: The Thomson Reuters Trust Principles.

Jody Godoy

Thomson Reuters

Jody Godoy reports on banking and securities law. Reach her at jody.godoy@thomsonreuters.com

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