The founder of New York-based hedge fund Platinum Partners was arrested on Monday as prosecutors unveiled an indictment charging him and six others with participating in an approximately $1 billion fraud.
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Mark Nordlicht, Platinum's founding partner and chief investment officer, was taken into custody at his New Rochelle, New York, home in connection with charges contained in an indictment filed in federal court in Brooklyn.
Others arrested included David Levy, Platinum's co-chief investment officer, and Uri Landesman, the former president of the firm's signature fund, said Federal Bureau of Investigation spokeswoman Adrienne Senatore.
Platinum is liquidating its hedge funds, two of which have received bankruptcy protection.
The indictment said that since 2012, Nordlicht, Levy and Landesman schemed to defraud Platinum investors by overvaluing illiquid assets held by its flagship fund.
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.
Nordlicht, Levy and Jeffrey Shulse, former chief executive officer of Platinum's majority-owned Black Elk Energy Offshore Operations LLC [BLCELB.UL], also defrauded the Texas energy company's bondholders, the indictment said.
A Platinum spokesman declined to comment. Nordlicht's lawyer did not immediately respond to a request for comment. Michael Sommer, Levy's lawyer, said he looked forward to clearing his client's "good name."
Lawyers for Shulse and the other defendants could not be immediately identified.
Founded in 2003, Platinum Partners until this year had more than $1.7 billion under management, the indictment said. The flagship fund reported returning profits of more than 8 percent in 2015 and 7 percent from January to April 2016, it said.
But this year, a series of investigations tied to Platinum came to a head, leading to a Cayman Islands court placing its two main funds into liquidation in August.
In June, Murray Huberfeld, a Platinum associate who prosecutors say was a founder, was charged in Manhattan federal court with orchestrating a bribe to the head of the New York City prison guards' union, Norman Seabrook, to secure a $20 million investment. Both have pleaded not guilty.
Two weeks later, the FBI raided Platinum's Manhattan offices in a separate fraud investigation that culminated in Monday's indictment.
Others indicted include Joseph Sanfilippo, the former chief financial officer of flagship fund Platinum Partners Value Arbitrage Fund LP; Joseph Mann, a former Platinum marketing employee; and Daniel Small, a Platinum managing director.
The case is U.S. v. Nordlicht et al, U.S. District Court, Eastern District of New York, No. 16-cr-640.
(Reporting by Nate Raymond in New York; Additional reporting by Lawrence Delevingne; Editing by Chizu Nomiyama and Lisa Von Ahn)