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Securities and Exchange Commission v. Platinum Management NY LLC

United States District Court, E.D. New York

November 20, 2017



          COGAN, District Judge.

         By Order dated November 11, 2017, I granted the Receiver's application to approve the retention of Houlihan Lokey Capital, Inc. (“Houlihan”), nunc pro tunc to September 11, 2017 (the “Application”), overruling the opposition to the Application filed by “a large group of non-insider Platinum Partners Credit Opportunities (“PPCO”) investors” (the “Objecting Investors”). This Memorandum Opinion sets forth the basis for that Order.


         The Alleged Platinum Partners Conspiracies

         The Securities and Exchange Commission (“SEC”) commenced this civil action on December 19, 2016, alleging that defendants Platinum Management (NY) LLC (“PMNY”) and Platinum Credit Management, L.P. (“PCM”), as well as individual defendants Mark Nordlicht, David Levy, Daniel Small, Uri Landesman, Joseph Mann, Joseph San Filippo, and Jeffrey Shulse (the “Individual Defendants”) (collectively, the “Civil Defendants”), participated in multiple fraudulent schemes in violation of various securities laws.

         Just prior to the filing of this civil action, on December 14, 2016, an indictment (the “Indictment”) was filed in this district charging each of the Individual Defendants with various counts of conspiracy to commit securities fraud and wire fraud, securities fraud, and investment advisor fraud. The civil and criminal actions address essentially the same two allegedly fraudulent schemes.

         First, the Indictment and civil complaint allege that between November 2012 and December 2016, the Civil Defendants concealed a growing liquidity crisis at Platinum Partners' flagship hedge fund, Platinum Partners Value Arbitrage Fund L.P. (“PPVA”), overvalued the performance of PPVA's assets, liquidity, and investments, and concealed the purpose of various transactions in violation of PPVA's governing documents. The Indictment and civil complaint also allege that select investors were paid requested redemptions of their investments in PPVA ahead of and/or in lieu of other investors, contrary to PPVA's governing documents.

         Second, the Indictment and civil complaint allege that between November 2011 and December 2016, certain of the Individual Defendants defrauded third-party holders of Black Elk Energy Offshore Operations, LLC (“Black Elk”) bonds and deprived those bondholders of the proceeds of a Black Elk asset sale through misrepresentations regarding PMNY's ownership and control over the bonds. After the SEC action was filed and the Indictment was unsealed, the Government moved on January 23, 2017 to intervene in the SEC's civil action and sought a stay of the civil proceedings pending the resolution of the parallel criminal action and ongoing grand jury investigation. On July 7, 2017, the Court granted the United States' motion to intervene and stay discovery pending the outcome of the associated criminal proceeding.

         The SEC Receiver

         All Platinum entities (the “Receivership Entities”), and all of their assets (the “Receivership Assets”) are under the control of a Receiver. The Court first entered an order appointing a Receiver on December 19, 2016, the same day that the SEC commenced this action, and entered an Amended Receiver Order on January 30, 2017. On July 6, 2017, the Court accepted the resignation of the original Receiver, Bart Schwartz, and appointed Melanie L. Cyganowski as Receiver. On October 16, 2017, the Court approved a Second Amended Order Appointing Receiver (the “Receiver Order.”).

         The Receiver Order provides that the Receiver is, among other things, to preserve the status quo, ascertain the true financial condition of Receivership Entities and the disposition of investor funds, prevent further dissipation of the property and assets of the Receivership Entities, protect investors' assets, and conduct an orderly wind down including a responsible liquidation of assets and orderly and fair distribution of those assets to investors. The Receiver Order authorizes the Receiver to develop a plan (in conjunction with any other party), for the fair, reasonable, and efficient recovery and disposition of all Receivership Assets. This authorization expressly includes the right to develop a plan of liquidation. Additionally, the Receiver Order authorizes the Receiver, subject to Court order, to hire individuals or entities to assist in carrying out her duties.

         The Receiver's Proposed Retention of Houlihan and the Abdala Tailings Project

         On October 16, 2017, the same day she was appointed, the new Receiver filed the Application, seeking the Court's approval for her retention of Houlihan, nunc pro tunc to September 11, 2017 (the date in which she entered into an engagement letter with Houlihan). The Receiver sought Houlihan's assistance in providing financial advisory and investment banking services in connection with the disposition of certain Receivership Assets. The original Receiver had retained an affiliate of Houlihan, Houlihan Lokey Financial Advisors, Inc. (“HLFA”) to provide valuation services with respect to some investments in the Receivership Assets.

         The Receivership Entities hold a diverse set of investments that generally fall into three categories: life settlement investments, litigation finance investments, and “other” assets, which primarily consist of investments in developing companies that work in the metals and mining sectors. The Receiver has been working to determine how to best dispose of the various Receivership Assets. The disposition of liquid Receivership Assets is relatively straightforward, but the Receiver argues that she would benefit from the skill of a professional institution, such as Houlihan, in the disposition of illiquid financial assets, including some of the “other” assets. One of the assets in this category that the Receiver seeks Houlihan's assistance in ...

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