The Wall Street Journal has recently reported that Judge Marvin Isgur of the U.S. Bankruptcy Court in Houston has issued a temporary restraining order barring transfers from certain bank accounts belonging to Platinum Partners’ hedge funds and investment vehicles.
Judge Isgur issued the order at the request of Trustee Richard Schmidt, who is overseeing the remnants of oil platform operator Black Elk Energy Offshore Operations LLC. Mr. Schmidt has sued Platinum for $200 million in U.S. Bankruptcy Court in Houston, alleging that insiders at Platinum’s flagship fund engaged in a scheme to “plunder” Black Elk by siphoning off the proceeds from the sale of its prime assets before putting the company into bankruptcy.
The lawsuit claims the scheme was engineered by a group of Platinum executives, among them Mark Nordlicht, who founded Platinum’s flagship hedge fund, and David Levy, who is a nephew of Murray Huberfeld, one of Platinum’s founders.
The Platinum insiders allegedly siphoned off the sale proceeds with the help of a company called Beechwood Bermuda International Ltd., which the lawsuit claims was secretly controlled by Platinum. Platinum, the suit claims, used Beechwood to arrange for a sham vote by bondholders to authorize the transaction. Beechwood wasn’t named as a defendant in the trustee’s lawsuit.
A spokesman for Beechwood, which wasn’t named as a defendant in the trustee’s lawsuit, is reported to have said that the Black Elk transaction “was handled by a former Beechwood employee who acted without consulting management.”
Mr. Schmidt is trying to claw back money for creditors of Black Elk, which filed for chapter 11 in 2015. In bankruptcy proceedings, a trustee can sue to claw back certain payments to businesses and company insiders if the company was insolvent at the time it made the payments. Such lawsuits are often unsecured creditors’ best shot at seeing a recovery on their losses.
Black Elk collapsed after getting hit with criminal charges in connection with an off-coast explosion that left three workers dead. Black Elk pleaded not guilty to the criminal charges and litigation is ongoing.
Platinum, whose flagship fund is in bankruptcy in the Cayman Islands, is being investigated by federal prosecutors in New York. Mr. Huberfeld, has pleaded not guilty to conspiracy and wire fraud in connection with an alleged bribe of a union official for investments. Platinum has said it is cooperating with the investigation.