If you're anything like the Department of Justice, you might look at Platinum Partners' epic collapse last year – which involved allegations of inflated portfolio prices, asset-stripping, bribery, and ponzi-like machinations, all capped off by an abortive plan for its principals to flee to Israel before being arrested – and feel a creeping suspicion that those shenanigans might have veered into criminal wrongdoing. To confirm such a hunch, it'd be nice to have a former employee who could tell you something along the lines of “I heard them inflate asset prices and do ponzi stuff.”
As luck would have it, the government has just the guy. Their cooperating witness is a former employee – a “senior” one, according to the defense – known affectionately to the feds CW-1.
What you wouldn't want, however, is the defense sending creepy and vaguely threatening letters to CW-1's counsel, as the government alleges in a recent court filing. Prosecutors told the judge that they have “serious concerns” about a letter sent by lawyers for Platinum founder Mark Nordlicht, which they say makes a “veiled threat to the Previous Employee relating to the Previous Employee’s post-Platinum employment.”
That's not a light allegation! To back it up they attached the letter CW-1's counsel received from Nordlicht's lawyers. The missive begins by noting that CW-1 was anonymously cited in an FBI agent's affidavit for a search warrant from June 2016 (which was later executed with gusto). In that affidavit, the agent states that CW-1 helped the case by telling him how “Platinum profited greatly from its fraudulent overvaluations,” among other juicy details. The Nordlicht Letter continues:
We find it implausible that [CW-1] made these statements. We will not belabor all the reasons why in this letter, but notably, had your client “explained” to the FBI that a hedge fund of which he was [an employee] “profited greatly from its fraudulent overvaluations,” this would have amounted to a self-incriminating confession of his own involvement or complicity in the alleged fraud.
This is, of course, the old if-you're-client-is-right-then-he's-guilty-too, which doesn't look great if you're defending the witness's old boss. But it goes on:
If so, we expect that your client must have agreed to or been promised a non-prosecution agreement, immunity agreement, or some other negotiated resolution of the potential criminal charges. If that were the case, [CW-1's subsequent employer] undoubtedly would have been required to disclose to its investors that its . . . [employee] had admitted to fraud at his prior [Platinum] position, and we understand no such disclosure has been made.
In other words, Nordlicht's lawyers are telling CW-1 that if he did indeed help the government out in exchange for protection, the firm he currently works at should have put that info on blast.
Why do they care? It's possible that, in the course of defending Nordlicht on multiple charges of securities fraud, the fine folks at Quinn Emanuel Urquhart & Sullivan, LLP have been seized with a sudden passion for investor protection and robust disclosure practices. But that's not how the feds interpret the letter:
The government respectfully submits that the foregoing language is tantamount to witness intimidation. It appears to urge the Previous Employee to recant what Nordlicht assumes to be the Previous Employee’s prior statements to the government, or risk having someone contact the subsequent employer regarding the Previous Employee, potentially resulting in adverse action against the Previous Employee or public denigration.
But there is a third and different way one might understand the letter: The witness never made those statements in the first place, so the “threat” is merely rhetorical. That's how Nordlicht's lawyers explained it in their response to the government's allegations of intimidation. As they told the judge:
Given the senior positions we believe CW-1 held at Platinum during the period in question, the statements attributed to him [...] would have amounted to a self-incriminating confession of his own involvement or complicity in the alleged fraud. This almost certainly would have precipitated an agreement or promise of a negotiated resolution of the potential criminal charges, and a corresponding disclosure by his current employer, which we understand is a financial services firm, that one of its senior employees had admitted to a crime in his prior position. We understand that no such disclosure has been made, which seems to further confirm that CW-1 never made these statements.
Assuming that the above is true, Nordlicht's counsel writes, “it is therefore unclear how Mr. Nordlicht can urge CW-1 to recant statements that Mr. Nordlicht believes do not exist.”
Unsurprisingly, Nordlicht's lawyers call the government's charges of witness intimidation “spurious,” “inflammatory,” “entirely false,” and “a clear effort to distract from the government’s own failure” to make required Brady disclosures, which include informing the defense of non-prosecution agreements with witnesses. Since the government has made no such disclosure, Nordlicht “strongly believes” that the FBI's affidavit that led to the raid his office was “premised on false information,” his counsel wrote. (It's not clear Nordlicht's lawyers they would bother CW-1's employer if their real beef is with the Department of Justice.)
This is more than a minor annoyance to the government. Not only did CW-1 allegedly provide the dirt needed for the government to raid the Platinum offices, he appears to be a key witness to some of the worst alleged wrongdoing at Platinum. At least if you find FBI agent Craig Minsky credible. In addition to explaining how Platinum allegedly overstated the value of its assets, according to the 2016 affidavit, CW-1 also said:
...that a current Platinum employee told him that Platinum intends to use assets from the unwinding of its main hedge fund to repay other funds rather than satisfy redemptions from investors in the main fund.
The former employee also fingered Nordlicht individually. Nordlicht allegedly told him that it was fine to pick and choose investors to make whole before others, because the whole thing was a “big stew.” Then there's this gem:
When CW-1 warned Nordlicht that it was improper to selectively choose investors for redemptions and that the investors who did not get paid would complain to the SEC, Nordlicht responded, in sum and substance, that the investors would not complain to the SEC because he had created of a “mutually assured destruction” and investors knew that complaining to the SEC meant that they would only receive ten to twenty cents on the dollar.”
In contexts other than global nuclear proliferation, you never want to hear a fund manager utter the words “mutually assured destruction.” But to give Nordlicht his due, his alleged estimates do appear to be accurate: Platinum investors are currently looking at getting about 10 percent of their funds back. So at least CW-1 and his old boss can agree on that.