Ex-platinum partners fund manager guilty in $70 million fraud

Daniel Small was accused of conspiring with Mark Nordlicht, Platinum’s co-founder, in a scheme to defraud bondholders of Black Elk Energy Offshore LLC of the proceeds of a lucrative asset sale. He was convicted on two of three counts on Friday in federal court in Brooklyn, New York.

Prosecutors said while Platinum was experiencing a liquidity crisis, it had a controlling stake in Houston-based Black Elk. Small was accused of conspiring with Nordlicht and others to rig a Black Elk bondholder vote by concealing Platinum’s majority control of its bonds, diverting $70 million in asset sale proceeds to Platinum, federal prosecutors in the office of Breon Peace said.

Prosecutor Loren Elbert told jurors in closing arguments Wednesday that Small, Nordlicht and others were motivated by greed when they conspired to have Platinum investors paid ahead of other bondholders.

Small, 53, faced one count of securities fraud, one of conspiracy to commit securities fraud and a wire fraud conspiracy count.

Nordlicht and Platinum’s co-chief investment officer, David Levy, were convicted of defrauding bondholders in the scheme in July 2019 after a nine-week trial. But US District Judge Brian Cogan tossed Levy’s conviction and ordered a new trial for Nordlicht. A federal appeals court in Manhattan then reinstated both convictions, concluding Cogan had abused his discretion. Both Nordlicht and Levy await sentencing.

Small’s lawyer Seth Levine told jurors Wednesday that the rules about which Platinum bondholder affiliates were allowed to vote were so complicated that even lawyers consulting on the transaction gave conflicting advice. He argued Small may have made a mistake but didn’t commit any crimes.

Platinum boasted some of the most impressive returns in the hedge fund industry for more than a decade, including 17% average gains through 2015 for the flagship fund, Platinum Partners Value Arbitrage. But prosecutors said at Nordlicht’s trial that the fund invested heavily in oil and gas ventures like Black Elk, which performed significantly below the valuations Nordlicht and Levy attributed to them.