CohnReznick LLP, the New York accounting firm that audited Platinum’s financial statements, declined to comment. The valuation agent, Sterling Valuation Group, said it was lied to by the fund and didn’t check the information it was provided. Sterling’s reports noted that the valuations depended on what the fund told it, according to Eric Rose, a spokesman for the New York-based firm.
“Obviously, a more expensive valuation would involve such activities as visiting the investment location or interviewing personnel,” said Rose, who added that the valuation firm isn’t under investigation.
Because Platinum couldn’t sell the oil fields, the fund started to depend on money from new investors to pay off those who wanted their money back, prosecutors said. In December 2013, an intermediary introduced Huberfeld to Norman Seabrook, who controlled a pension fund as president of the New York City correction officers’ union, according to prosecutors.
Huberfeld agreed to pay Seabrook a kickback if he invested his union’s pension funds with Platinum, the U.S. said. After the union put in $20 million, the intermediary, who’s cooperating with the corruption probe, allegedly gave Seabrook $60,000 stuffed in a Ferragamo bag. Seabrook and Huberfeld pleaded not guilty.
‘SEC Room’
That money tided Platinum over for only a short time. “It can’t go on like this or practically we will need to wind down,” Nordlicht wrote in a June 2014 e-mail cited by the SEC.
The next year, SEC lawyers conducted an examination of Platinum. They spent so much time at its offices that Nordlicht started calling a conference room “the SEC room,” the person with knowledge of the matter said. When the lawyers left by the end of the year without bringing any charges, Nordlicht told investors he’d been given a clean bill of health, the person said.
That wasn’t exactly true. The SEC sued Platinum last month at the same time prosecutors filed their case and credited its examiners with uncovering suspicious activity.
Nordlicht displayed little concern when interviewed for an October 2015 Bloomberg article. In that story, hedge fund researcher Nate Anderson said Platinum displayed “red flags you can see from outer space.” Nordlicht argued that while he exploited loopholes, he always did it to earn money for the fund’s investors. “We’ll scour the four corners of the earth for the best risk-adjusted strategy,” he said.
The next month, so many investors asked for their money back that Nordlicht was forced to admit that some of the fund’s assets couldn’t be sold right away. By that December, Platinum’s managers were contemplating fleeing the country, according to prosecutors.