A few days ago I heard that Platinum Partners was accused of running a billion dollar Ponzi Scheme. I checked today to see if there were any diaries. I found one, but I decided to write a longer diary in order to flesh out the story:
www.dailykos.com/…
According to this Wall Street Journal (yes I know it the Wall Street Journal, but in this case I trust them) article the head of Platinum Partners, Murray Huberfeld, had previous run ins with the law:
www.wsj.com/…
Mr. Huberfeld, the 55-year-old son of a kosher restaurateur in the working-class Brooklyn neighborhood of Canarsie, traded penny stocks privately for years. In 1992 he pleaded guilty to a misdemeanor after sending an imposter to take a brokerage-license exam on his behalf, drawing a $5,000 fine.
In 2003 Murray Huberfeld founded the hedge fund Platinum Partners. He claimed that he could make steady returns for his clients by investing risky assets such as failing companies. And at first these risky bets seemed to pay off. Huberfeld gave his customers steady double digit returns. He even managed to present an aura of success:
For his son’s bar mitzvah in 2008, hedge-fund manager Murray Huberfeld chartered a JetBlue plane and invited hundreds to an oceanfront party in Palm Beach, Fla. An Orthodox pop star known as the “Jewish Elvis” entertained the guests, who Mr. Huberfeld says included investors in his fund.
Platinum Partners even weathered the 2008 financial crisis. However, in recent years there were increasing withdrawals. The question was how a Ponzi scheme could face such pressure. Murray Huberfeld hit upon a brilliant plan. He would bribe union officials so that they would invest their unions’ pension funds with him. Unfortunately for him (and fortunately for everyone else) this was Murray Huberfeld’s undoing.
Enter Norman Seabrook. For over twenty years Seabrook was the President of the Correction Officers’ Benevolent Association (COBA). During that period Seabrook turned that organization into his own fiefdom. Yet he was not content to be merely paid a salary for managing COBA’s funds responsibly. Seabrook had a taste for luxury goods and he could not afford with what he was actually earning. “It’s about time Norman Seabrook got paid,” he told a cooperating witness. And get paid he did. Murray Huberfeld gave Norman Seabrook $60,000 in a bag in return for investing COBA’s pension and other assets in Platinum Partners’ Ponzi Scheme Hedge Fund. Unfortunately this raised a series of red flags and this was quickly investigated. The Feds arrested Murray Huberfeld and Norman Seabrook on bribery charges.
Here is the article from the Daily Beast:
www.thedailybeast.com/…
Here is the original indictment from June 7, 2016:
www.justice.gov/…
The Feds gave a press conference on June 8, 2016:
It should be noted that at 13:45 that it was denied that Murray Huberfeld was accused of anything, but bribery. Nonetheless, they were investigating every angle of Platinum Partners.
As an aside Norman Seabrook was quickly forced out as President of COBA:
One thing led to another and the FBI investigation concluded that Platinum Partners was just one big Ponzi Scheme:
www.wsj.com/…
www.forbes.com/…
Now one of the interesting aspects of the case was its link to Jared Kushner and by extension the Trump family:
Among the people it [Platinum Partners] turned to for cash were Marisa and Richard Stadtmauer, the aunt and uncle of Jared Kushner, according to a document from Platinum’s court-appointed liquidator, a copy of which was obtained by The Post. Kushner is married to Trump daughter Ivanka.
nypost.com/…
This link is still kind of fuzzy. Marisa and Richard Stadtmauer might actually be victims or they could have been accomplices attempting to bail out Murray Huberfeld. Only time will tell.
P.S. Here is some sound advice to all future Ponzi Schemers. First, don’t do it. I may not be Nostradamus, but I can tell you with 100% certainty that it will not end well. Second, if you do do it never ever steal from a prison guard union. When you do eventually end up in prison you will have to deal with a ton of angry prison guards on a daily basis.
Thursday, Dec 22, 2016 · 1:34:28 AM +00:00 · abydenus
Found an interesting article from Bloomberg dated October 21, 2015:
www.bloomberg.com/…
Here is an interesting quote:
In January, regulators sanctioned an outside broker doing business with the hedge fund for running what they called a “scheme to profit from the imminent deaths of terminally ill patients.” In August, prosecutors in Louisiana filed criminal charges against an oil company that had been Platinum’s biggest investment in connection with an explosion that killed three workers. And last month the former head of an energy company in which the $1.4 billion fund had a significant stake was arrested for tax evasion. The good news: Platinum says it’s making money, just as it has in each of the past 13 years. Since it was founded in 2003, its main fund has gained an average of about 17 percent annually, according to an investor presentation. That’s on a par with the world’s best-performing hedge funds, such as Bill Ackman’s Pershing Square Capital Management and Israel Englander’s Millennium Management.
Of course even then a few people were skeptical:
Nathan Anderson, founder of hedge-fund researcher ClaritySpring Inc., was asked last year by potential investors to look into Platinum. He said that while returns were about the steadiest he’d seen, the rest of what he found raised questions. “When you see nearly flawless returns, it’s intriguing, but also potentially worrying,” Anderson said. “Even cursory due diligence showed that a number of their dealings ended in death, litigation or handcuffs. Those are the kinds of red flags you can see from outer space.”
Hopefully more information will turn up soon.
Thursday, Dec 22, 2016 · 3:20:14 AM +00:00
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abydenus
I got another really big scoop. I got a tip that Hedgeweek.com wrote a piece praising Platinum Partners:
www.hedgeweek.com/…
However, when I went there I was denied access. Then I remembered the power of Google Cache. Fortunately they had a cache from December 16, 2016 when the article was still up:
webcache.googleusercontent.com/…
Here are some fun parts:
“I like to describe ourselves at Platinum Partners as entrepreneurial traders. We select and promote entrepreneurs who have an understanding of how to structure transactions in a way that caps the limit to the downside while giving us all kinds of upside opportunities,” says Uri Landesman, president and managing general partner of the New York-based firm.
Since 2003, the fund has built an enviable track record, generating average annualised returns of 20.13 per cent – outpacing the firm’s target of 15 per cent annualised. Its best performance to date came in 2007 when it returned 53 per cent, which Landesman attributes to a number of factors: “Three of our underlying strategies had their best ever years, no single strategy underperformed, and also we started that year with a relatively low asset base, which meant the gains we made had a big impact. The best strategy was volatility trading in natural gas. Uncertainty in the markets allowed us to set up some trades that created a tail-risk for free and made impressive gains,” confirms Landesman.
Last year’s performance – up 21.03 per cent – was largely thanks to the special situations side of the book, says Landesman: “One strategy, which we call physical commodity arbitrage, is with a 71 per cent stake we own in Black Elk Energy, a private oil and natural gas producer in the Gulf of Mexico; this enjoyed a fairly significant write-up last year. The other big contributor was our event-driven healthcare basket, specifically an investment in biopharmaceutical firm Navidea.”
Go take a quick look at the archived article before they take it down too.