April 17, 2018 / 3:58 PM / 8 months ago

Judge splits NY hedge fund trial as one defendant turns on others

NEW YORK, April 17 (Reuters) - The judge overseeing the $1 billion fraud case of defunct New York hedge fund firm Platinum Partners has ordered a separate trial for a defendant planning to argue that Platinum Chief Investment Officer Mark Nordlicht and other defendants were guilty as charged.

In a decision on Monday, U.S. District Judge Brian Cogan in Brooklyn severed the trial of Jeffrey Shulse, the former chief executive at Platinum’s Black Elk oil exploration company, while declining Nordlicht’s own bid to be tried separately.

Cogan said Shulse’s strategy of maintaining his innocence while implicating Nordlicht and other defendants would subject them to “double prosecution.”

He also said it would inevitably lead to frequent and disruptive objections and finger-pointing, “seriously disrupting trial in a manner that would test any jury.”

Lawyers for Nordlicht and Shulse did not immediately respond on Tuesday to requests for comment.

A spokesman for U.S. Attorney Richard Donoghue, whose office opposed Nordlicht’s severance motion, declined to comment.

Prosecutors criminally charged seven defendants in December 2016 over two alleged fraudulent schemes involving Platinum.

In one scheme, Platinum, whose investors included many people from New York’s Jewish community, was accused of overvaluing its often-illiquid assets to collect higher fees, and falsely reporting annualized returns topping 17 percent.

Authorities said Platinum operated “like a Ponzi scheme” by using new money to fund redemptions by earlier investors, which were referred to internally as “Hail Mary time.”

In the second scheme, Black Elk was accused of running a $50 million bond fraud, where it diverted proceeds of asset sales to Platinum though bondholders had priority. (here)

Black Elk struggled financially after a November 2012 explosion on a Gulf of Mexico rig killed three workers and caused an oil spill. It went bankrupt in 2015.

Cogan said Shulse plans to argue that the other three defendants in the Black Elk scheme hid their fraud, and that he went to authorities immediately upon learning what happened.

Nordlicht pleaded not guilty to involvement in both schemes.

The charges were announced six months after the arrests of Platinum executive Murray Huberfeld and Norman Seabrook, the former chief of New York City’s correction officers union, in a separate corruption case in Manhattan.

That case ended with a hung jury in November.

The case is U.S. v. Nordlicht et al, U.S. District Court, Eastern District of New York, No. 16-cr-00640. (Reporting by Jonathan Stempel in New York Editing by Matthew Lewis)

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