The move may ultimately protect investors from short-term losses, but changing liquidity terms is a last-resort measure that can turn investor sentiment against a fund.
Black Elk Blowup
Platinum's involvement with Black Elk shows just how complicated the firm's investments can get - and how Nordlicht manages to wring profits from them.
Houston-based Black Elk was founded in 2007 to buy no-longer-productive offshore wells at discounted prices and then use new technology to squeeze more oil and natural gas from them.
Platinum began investing in Black Elk in 2009, first lending to it. Platinum later acquired preferred shares that eventually gave it majority control - and paid annual dividends of 20 percent or more, according to securities filings and an external valuation report reviewed by Reuters.
Then, in 2012, an explosion on a Black Elk rig off the Louisiana coast killed three workers, seriously injured three others and spilled oil into the Gulf of Mexico. A 2013 report from the U.S. Department of the Interior's Bureau of Safety and Environmental Enforcement found that the "safety culture" aboard the rig was "poor at best." Even before the explosion, the company received hundreds of bureau citations for safety violations.
The Department of Justice subsequently announced criminal charges against Black Elk and related contractors. Black Elk pleaded not guilty to involuntary manslaughter and other charges related to failing to follow proper safety practices. The case is pending.
That and other legal challenges after the explosion, combined with the collapse of energy prices, were among the issues that forced Black Elk into bankruptcy proceedings in August 2015.
By then, however, the company had sold its main assets to Houston-based Renaissance Offshore LLC for $149 million. Most of the proceeds from that August 2014 sale went to a Platinum subsidiary. Black Elk then sold much of its remaining assets to Northstar Offshore Group LLC, a Houston company in which Platinum is a substantial investor.
Together, the sales helped Platinum and its investors eke out a modest profit on their Black Elk bet, according to the person familiar with Platinum's history. The position was the largest holding in the Value Arbitrage fund on March 31, 2014, worth as much as $186 million, according to the valuation report.