This week, the authorities arrested hedge fund founder Mark Nordlicht and several others over allegations that his Platinum Funds was involved in\u00a0a $1B\u00a0ponzi scam that defrauded over 600 investors. They also are facing civil charges brought by the US Securities and Exchange Commission. This is the largest Ponzi scam since the collapse of Bernard Madoff\u2019s multi-billion dollar scheme that bilked investors of $50B.<\/p>\n
According to the SEC, it discovered suspect activity during a probe of Platinum Partners and its flagship hedge fund advisory firms, Platinum Management LLC and Platinum Credit Management LP. The firms and Nordlicht are accused of inflating asset values, illicitly moving investor funds to conceal liquidity issues and losses, giving redemptions to the investors whom they favored, overstating the value of one oil company that was a huge asset, and making misrepresentations to bring in new investors during what internally was referred to in documents as a \u201cHail Mary Time.\u201d<\/p>\n
The SEC is accusing Nordlicht of colluding with two colleagues and an executive at Black Elk Energy, which is the funds\u2019 oil investment, to divert nearly $100M from that company to give a \u201cboost\u201d to the Platinum funds. He and others allegedly manipulated a key vote to support Platinum\u2019s position. Also, to meet investor redemption requests, the defendants allegedly took out high-interest rate loans, commingled money within the funds, and improperly raised funds from new investors.<\/p>\n