New York – Platinum Partners has hired an independent monitor to oversee the liquidation of its two main hedge funds amid investigations by U.S. authorities, according to a letter sent to investors on Wednesday.
The U.S. Securities and Exchange Commission (SEC) has requested information from New York-based Platinum, according to a person familiar with the situation.
The U.S. hedge fund manager said last month it was likely to return the assets of its largest and oldest fund to clients following the arrest of a longtime associate on allegations he orchestrated a $60,000 cash bribe to secure an investment from a New York City union. (See Reuters Special Report on Platinum from April 2016: http://www.reuters.com/investigates/special-report/usa-hedgefunds-platinum/)
The SEC probe comes on top of a Department of Justice inquiry and a raid by Federal Bureau of Investigation agents last month. The focus of the various reviews was unknown and it was not clear if they are related.
To ensure the assets from its funds are distributed fairly, Platinum has hired Bart Schwartz of Guidepost Solutions to “assist…with the development and implementation of a plan for the orderly liquidation of the Funds under management,” according to a letter he sent to Platinum clients.
Guidepost will also report to the SEC at least monthly, Schwartz wrote in the letter, which was seen by Reuters. The communication with the SEC will include the sale of assets from Platinum’s portfolios and any potential violations of federal securities law, he wrote.
An SEC spokesman declined to comment.
Platinum, founded and led by Mark Nordlicht, has produced exceptional profits for investors since it launched in 2003. But the firm’s strategy of lending to troubled companies carries risks that have scared away many large investors. (See Reuters Special Report on Platinum from April 2016: )
Platinum’s investors have been rattled by the arrest of longtime firm associate Murray Huberfeld on wire fraud charges related to a separate New York City corruption investigation by the U.S. Department of Justice. Huberfeld plans to plead not guilty, according to his attorney.
The firm recently blocked redemptions from its flagship Value Arbitrage fund and told investors they would not receive anything until at least 2017, according to Robert McIver, a Platinum client who has requested his money back.
The source who said the SEC was investigating the firm also said it would remain in business despite the gradual liquidation of the Platinum Partners Value Arbitrage Fund and the Platinum Partners Credit Opportunities Fund. The two funds contain the large majority of Platinum’s assets, about $1.35 billion as of April.
The source declined to be identified because the information is private.
“Bart Schwartz will play a key role in ensuring that investors’ best interests are served as we monetize the funds and meet redemptions,” Platinum said in an emailed statement. “His standing with the investment community, regulators and law enforcement is beyond reproach and we’re very pleased to have his assistance.”
Schwartz was chief of the criminal division in the Department of Justice’s Southern District of New York and more recently worked as the appointed receiver of hedge funds run by J. Ezra Merkin that invested in Bernard Madoff’s Ponzi scheme and a compliance consultant for the Department of Justice to monitor Steven Cohen’s Point72 Asset Management.