Jewish New Yorkers fear a repeat of the Bernie Madoff scandal after senior executives of a New York hedge fund with close community ties were accused this week of operating a $1 billion Ponzi scheme and indicted on multiple counts of fraud and conspiracy.
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Platinum Partners LP executives collected $100 million in fees as they offered investors annual returns of up to 17 percent. The fund collapsed in June following the arrest of one of its founders on bribery charges.
It claimed to have assets of more than $1 billion but weeks earlier it had just $68,530 in cash, according to court documents.
Robert L. Capers, United States Attorney for the Eastern District of New York, said the double-digit returns were financed by transferring funds from new investors and loans in a classic Ponzi-style scheme.
“These Platinum Partners employees devised a scheme to lure investors to funds they managed knowing the funds were insolvent and would not return the high yields they claimed,” Capers said.
Mark (Meir) Nordlicht, the founder and chief investment officer of Platinum, David Levy, the co-chief investment officer, Uri Landesman, the firm’s former managing partner and president, and four others, were named in an eight-count indictment unsealed on Monday in federal court in Brooklyn.
They are accused of defrauding investors by overvaluing assets, concealing severe cash flow problems and the preferential payment of redemptions.
Nordlicht, 49, attends Young Israel of New Rochelle and sits on the Board of Directors of Westchester Torah Academy, according to The Commentator, the Yeshiva University student newspaper.
Landesman, 55, also resides in New Rochelle. Levy, 31, lives in New York City. All three are Yeshiva University graduates.
In December 2015, Nordlicht told Landesman his wife wanted him to fly to Israel if he was unable to get a loan from his partners to save the fund.
“You should get on the flight if there is no bridge [loan], probably even if there is,” Landesman responded. “We need to go through the mehalech (procedure) of how we are going to share this with clients and employees, going to be very rough, big shame hopefully the girls will reacclimate quickly.”
None of them came to Israel, and it’s doubtful it would have helped. Israel has changed its extradition laws since Samuel Flatto-Sharon famously immigrated to Israel in 1975 to escape charges of embezzling $60 million in France and won a seat in the Knesset two years later.
Since 1999, even Israeli-born criminals can be sent to stand trial for crimes committed abroad.
“As alleged, Nordlicht and his cohorts engaged in one of the largest and most brazen investment frauds perpetrated on the investing public,” said Capers.
“Platinum Partners purported to be a standard bearer in the hedge fund industry, reporting annual average returns of more than 17 percent since inception in 2003.
In reality, their returns were the result of the overvaluation of their largest assets, which eventually led to Nordlicht and his co-conspirators operating Platinum like a Ponzi scheme, where they used loans and new investor funds to pay off existing investors."
The defendants deny the charges.
Murray Huberfeld, 56, the founder of Platinum Partners, was arrested in June and accused of bribing the head of the New York prison officers’ union to secure pension fund investments.
Soon after, he resigned from the board of the Simon Wiesenthal Center. Through the Huberfeld Family Foundation, he was a major donor to Jewish charities and synagogues, including those of the Chabad Lubavitch movement.
Platinum had close ties to Jewish charities and individuals. According to the New York Observer, last November two prominent Jewish clients cited Platinum to the Securities and Exchange Commission for withholding more than half a million dollars of their investments.
“The Fruchthandler family, real estate moguls whose holdings include the Woolworth Building, and the founder of one of the oldest and most well-respected Brooklyn yeshivas, Yeshiva Rabbi Chaim Berlin Fund, reported Huberfeld & Platinum to the SEC for non-payment of over $600,000 in redemptions dating back to 2014,” the Observer reported.
As their reserves dwindled, Platinum executives sought new investments from Jewish charities and individuals that may never be repaid.
In May, weeks before the fund collapsed, Torah Umesorah, the National Society for Hebrew Day Schools, loaned Platinum $2.3 million.
Relatives of Jared Kushner also extended large loans, the New York Post reported, citing the fund’s liquidator. Kushner’s uncle Richard Stadtmauer loaned Platinum $6.4 million. Stadtmauer's wife Marisa advanced $4.1 million.
Platinum courted orthodox Jewish investors, just like Madoff, whose multi-billion-dollar fraud wrecked foundations and destroyed individuals’ savings.
“Unfortunately, this isn’t the first time – nor will it be the last – that this has happened. The Jewish community, like every other community, seeks to maximize returns on its investments while sometimes ignoring reality,” said Arnie Draiman, a Jerusalem-based consultant who advises donors on how to give to charity most efficiently.
“The family and community connections enable them to prey on people. If a guy knocks on the door and promises you 17 percent, you’re not going to believe him, but if your brother-in-law’s best friend’s cousin says it, you trust him.
Sure enough, you get your 17 percent year after year and you’re happy. That trust allows them to become embedded in the community,” said Draiman.
The alleged fraud is smaller than Madoff’s $18 billion scam, but there is shock at the Yeshiva University connection.
"The Modern Orthodox World is once again aghast at the news of a major financial fraud, allegedly involving successful products of YU,” said Rabbi Jeffrey R. Woolf, associate professor of Talmud and Jewish Law at Bar-Ilan University.
“This is the downside of the first time in history, that I can recall, that Orthodox Jews have massive amounts of money and their education has failed to prepare them for that,” said Woolf. “Members of the Modern Orthodox community have apparently become charter members of the Universal Church of the Golden Calf, which preaches the centrality of money, and that can spill over into evil."
Rabbi Ozer Glickman, Rosh Yeshiva and lecturer in Business and Jewish Law at the Rabbi Isaac Elchanan Theological Seminary of Yeshiva University, said the Platinum executives had close ties to the school.
“They are supporters of the institution,” said Glickman, adding that Nordlicht’s father had donated an office “in the very building I’m sitting in. His name is on the door with his wife’s name. These are people who are donors and are very highly visible in all the organizations that the people who cluster around YU identify with.”
Glickman said Platinum was long regarded with suspicion by knowledgeable investors.
“It was well-known to people in the business. We all knew there was something going on at Platinum and consequently professional investors avoided it,” said Glickman.
“We have to start to become embarrassed by this. There has to be a huge re-set in the Orthodox community. We can’t keep on honouring people because of money. This is what it leads to. They get intoxicated by the honours.”
Glickman said his students were taught that Jewish law simply forbids dishonesty of any kind.
“It should be as obvious as the nose on your face that it is not permissible to steal from other people, including non-Jews,” he said.
“There’s no permit to cheat the government, to cheat other people. The fact that somebody would even suggest that is deeply offensive to me.”