BROOKLYN FEDERAL COURT — The founder of a Wall Street hedge fund tied to a widespread city corruption scandal was charged by the feds Monday in connection to a $1 billion investment fraud scheme, officials said.
Mark Nordlicht, founder and CIO of Platinum Partners, and six other current and former hedge fund employees defrauded investors by overvaluing assets and funneling proceeds to themselves instead of their bond holders, prosecutors said.
“There are rules and regulations that allow, for among other things, who should be compensated first if there are certain assets being sold,” U.S. Attorney Robert Capers said.
“What Platinum Partners did is they hatched a scheme to have those proceeds diverted to them as opposed to the bond holders who were first in line to be paid.”
FBI Assistant Director William Sweeney, Jr. refused to say what sparked the investigation, but in June former Platinum executive Murray Huberfeld was arrested on charges of conspiracy and wire fraud.
Huberfeld allegedly bribed the former head of the city's correction officers' union, Norman Seabrook, with more than $60,000 in cash in January 2014. In return, Seabrook invested more than $20 million of the union’s pension money into a struggling fund within Platinum Partners, federal prosecutors said.
Huberfeld is believed to have met Seabrook through Brooklyn businessman Jona Rechnitz, a major donor to Mayor Bill de Blasio’s campaign who is also ensnared in the corruption probe and is currently cooperating with investigators.
Huberfeld, however, was not named in Monday’s indictment, and prosecutors said the probes were not connected.
Still, Capers said the indictment was another black eye for Platinum.
“This house of cards came crashing down,” he said. “Investors and the world got to see that Platinum Partners held no more value than a tarnished piece of metal.”
Capers and the six other current and former partners were expected to be arraigned Monday afternoon.
Sweeney said he hoped the indictment would send a message to other corrupt hedge fund executives.
“This case should prove that eventually the money will run out,” he said. “And those doing inspector frauds will get caught."