Ex-Platinum Partners manager sentenced to probation for securities fraud

By Jody Godoy

(Reuters) – A former portfolio manager at the now-defunct Platinum Partners was sentenced to 10 months of probation for securities fraud on Wednesday, the first sentence in what prosecutors called a $1 billion fraud case when they brought it in 2016.

Daniel Small was convicted at trial in August 2022 of a scheme to defraud bondholders of one of Platinum’s portfolio companies.

The New York hedge fund once managed more than $1.7 billion in assets, but folded amid a fraud investigation its co-founder Mark Nordlicht and co-chief investment officer David Levy.

Nordlicht and Levy were convicted of defrauding bondholders in July 2019 but were acquitted of a broader scheme to overvalue assets in Platinum’s flagship Value Arbitrage Fund. Neither has yet been sentenced.

Prosecutors said Small helped Nordlicht and Levy defraud bondholders of Black Elk Energy Operations LLC, a Platinum-controlled oil exploration company, by rigging a bondholder vote. The scheme diverted $70 million from asset sales to Platinum insiders ahead of Black Elk’s 2015 bankruptcy, prosecutors said.

U.S. District Judge Brian Cogan ruled in July that prosecutors had not shown bondholders suffered any losses from the scheme. Federal guidelines recommend long sentences in fraud cases where loss amounts are high.

A spokesperson for the U.S. attorney’s office in Brooklyn declined to comment.

Small’s attorney Seth Levine said that while Small plans to appeal the conviction, he is “deeply grateful” for the probationary sentence.

In a separate case, Platinum Partners co-founder Murray Huberfeld was sentenced in 2021 to seven months in prison for bribing the once-powerful head of New York City’s correction officers’ union.

The case is U.S. v. Nordlicht, U.S. District Court for the Eastern District of New York, No. 16-00640.