Uh-oh. Bernie Madoff all over again?
That’s what federal prosecutors are alleging in the case of Platinum Partners, a hedge fund that operated “like a Ponzi scheme,” according to a 48-page indictment released today by the U.S. Attorneys Office in the Eastern District of New York. The document charges seven men, including Platinum’s founder and its president, with running a multiyear fraud, even though the firm purported to have one of the best records in the industry, for years claiming double-digit returns for its investors.
The strong returns it claimed drew in new investors. In reality, the firm’s executives overvalued its investments, such as a now-bankrupt oil and gas company, Black Elk Energy, according to the indictment. Platinum illegally drew on the assets of Black Elk and other companies, the indictment says, to cover a liquidity crisis; it also paid some investors back ahead of others.
Unlike some in the hedge fund industry, the executives of Platinum weren’t major players in the political arena. But they weren’t pikers, either, giving (with their spouses and individuals connected to companies they controlled) a total of about $167,000 since the 2008 election cycle.
The firm’s cofounder, Murray Huberfeld — who was arrested earlier this year by the feds, allegedly for trying to bribe a union leader to funnel $20 million in pension money to Platinum — gave the most, $35,400 with his wife; almost all of it went to GOP congressional candidates.
Platinum founder Mark Nordlicht and his wife gave $31,600.
The firm’s favorite candidate over the years? Josh Mandel, who ran in 2012 to unseat incumbent Ohio Democratic Sen. Sherrod Brown. He received $30,000 from Platinum’s executives, almost all of it given in December 2011.
Highly unlikely that Mandel, who has announced he will run for Senate again in 2018, will be able to make a return trip to this particular set of donors. Should he scratch the surface of the hedge fund industry, though, he’ll find plenty of substitutes. Executives at Renaissance Technologies alone gave nearly $52 million in the 2015-2016 cycle alone, with Robert Mercer giving to Republican candidates and outside spending groups and James Simons giving to Democratic ones.
Paul Singer’s Elliott Management came in at $26.4 million, all to the Republican side.
Platinum had recently told investors it oversaw more than $1 billion in investments, a figure that was highly inflated if the government’s charges are true. But Huberfeld and Nordlicht appeared to know the gig was up a year ago: According to the indictment, in December 2015 the two discussed fleeing to Israel. “Assume we are not coming back to ny…Take passport,” Huberfeld emailed Nordlicht.