Platinum Partners Promised Hedge-Fund-Like Returns But Prosecutors Say It Was a Ponzi Scheme
Prosecutors believe that Platinum Partners, an established American investment fund, may turn out to be just another Ponzi scheme.That’s what the Department of Justice in eastern New York said. (Source: “Prosecutors Allege $1.3 Billion Hedge Fund Platinum Partners Operated ‘Like A Ponzi Scheme‘,” Forbes, December 19, 2016.)
Platinum Partners, said the investigators, ran a multi-year fraud scheme. The “fund” covered up murky assets to give the idea of outperformance. Thus it attracted investors and their hard-earned savings. It generated some $100.0 million in fees for them, but little to show for the—duped—investors. (Source: Ibid.)
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So far, authorities have arrested seven people associated with the scam and the “firm.” Platinum Partners founder and investment manager, Mark Nordlicht, was one of those arrested. The defendants should appear before a federal judge in Brooklyn. They face charges of securities fraud and unlawful investment “advice.”
Platinum Partners has been around for almost 14 years. It was founded in 2003, presenting itself as an alternative investment fund specializing in fossil fuels. By March 2016, clients had deposited, and entrusted, some $1.7 billion in assets with the firm. (Source: Ibid.)
Platinum’s U.S. Securities and Exchange Commission (SEC) filings show that Platinum, apart from fossil fuels, invested in over-the-counter micro-cap stocks such as Echo Therapeutics Inc (OTCMKTS:ECTE), Pedevco Corp (NYSEMKT:PED), and Infinity Augmented Reality Inc (OTCMKTS:ALSO). Prosecutors saw these as potential red flags because they do not typically fall under the radar of hedge fund investors. (Source: Ibid.)
According to the federal prosecutor, Platinum Partners used a traditional Ponzi or pyramid scheme. Its ploy was to use the funds deposited by new investors to satisfy the demands of previous customers who wished to recover their money.
These funds typically attract investors by promising huge returns. But the money entrusted by the clients is not invested “safely.” The money is often abused in high-risk investments, which does not make it sufficiently fruitful. Customers lost about a billion dollars overall, said prosecutors. (Source: Ibid.)
Still, that makes it rather small compared to the best-known Ponzi scheme. That’s the one uncovered in 2008 in which Bernie Madoff lost some $20.0 billion for his clients.
