Portfolio Manager Daniel Small Convicted of Defrauding Bondholders in a Multi-Million Dollar Scheme
BROOKLYN, NY (August 13, 2022) — Daniel Small, a former portfolio manager for Platinum Partners L.P., was convicted today by a federal jury in Brooklyn on charges of securities fraud and securities fraud conspiracy for his role in defrauding the bondholders of Black Elk Energy, an oil company that was one of Platinum’s largest assets, by rigging a consent solicitation vote. The verdict followed a two-week trial before United States District Court Judge Brian M. Cogan.
In July 2019, Nordlicht and Levy were convicted on the same charges by a federal jury following a two-month trial. Both defendants are awaiting sentencing.
Why it matters: Millions of dollars was stolen from innocent victims for the benefit of the defendants, their friends and family.
The Defendants:
- Daniel Small, 53, of New York, New York
- Mark Nordlicht, 54, of New Rochelle, New York
- David Levy, 37, of New York, New York
E.D.N.Y. Docket No. 16-CR-640 (BMC):
Platinum was a New York City-based hedge fund founded in 2003.
The Scheme:
Between approximately November 2011 and December 2016, Small, along with co-conspirators including Mark Nordlicht, the founder and Chief Investment Officer of Platinum, and David Levy, the co-Chief Investment Officer of Platinum, orchestrated a fraudulent scheme to defraud third-party holders of Black Elk’s publicly traded bonds by diverting to Platinum the proceeds from the sale of the vast majority of Black Elk’s most lucrative oil fields even though the bondholders had priority over Platinum’s equity interests.
To execute this scheme, in early 2014, Small, Nordlicht, Levy and others caused Platinum to secretly purchase Black Elk bonds on the open market and gain control of $98 million of the $150 million of outstanding bonds. The bonds were then transferred through a number of related entities to conceal their ownership and control by Platinum. Small, Nordlicht, Levy and their co-conspirators then rigged a consent solicitation vote to amend the Black Elk indenture so that the proceeds from the sale of Black Elk’s best assets would be paid to the preferred equity – which was held by Platinum and Platinum insiders – ahead of the other bondholders. Notably, non-Platinum related bondholders overwhelmingly voted against changing the indenture; one testified that bondholders would never knowingly give up being “as senior as possible in the capital structure” for “nothing” in return, which he characterized as an “irrational choice.”
After the rigged vote was complete, Small, Nordlicht, Levy and their co-conspirators took millions of dollars from the asset sale for themselves, family members and friends, including approximately $7 million to Nordlicht’s father, approximately $250,000 to Levy, approximately $100,000 to Small and approximately $2 million to the brother of another co-conspirator.
What they are saying:
United States Attorney Breon Peace:“Small and his co-conspirators engaged in a scheme to deceive the bondholders of Black Elk by rigging the vote to enrich themselves. Today’s verdict demonstrates this Office’s dedication to prosecuting those who refuse to play by the rules and defraud others. This Office will pursue justice without fear or favor no matter the obstacles.”
FBI Assistant Director-in-Charge Driscoll: “Mr. Small and his co-conspirators, fueled by their own self-interest and avarice, purposely cheated their investors. Today the jury held Mr. Small accountable for his actions, another step in the process of getting justice for his victims. The FBI and our partners remain committed to holding actors who defraud and manipulate investors responsible for their crimes so the public maintains its confidence in the integrity of our financial markets.”
USPIS Inspector in Charge Daniel B. Brubaker: “Daniel Small, former Managing Director of Platinum Partners, conspired in an elaborate scheme to fraudulently divert millions in proceeds from bond investors to Platinum Partners. This scheme was artfully concealed through what appeared to be a series of legitimate events. Nonetheless, it was an outright multi-million dollar theft from innocent victims. The United States Postal Inspection Service has a long and proven history of investigating egregious Wall Street Security Frauds such as these. Small’s conviction represents our dedication to help maintain an honest and fair trading environment across all publicly traded companies.”
The government’s case is being handled by the Office’s Business and Securities Fraud Section. Assistant United States Attorneys David Pitluck, Lauren Elbert and Nicholas Axelrod are in charge of the prosecution.
Deeper dive:
Two New Rochelle Men Among Seven Indicted In A $1 Billion “Ponzi-esque” Investment Fraud
SEC receiver sues Platinum Partners founder Mark Nordlicht in $220M bankruptcy action
Mark Nordlicht, who once managed $1.7 billion, declares $137,000 in bankruptcy assets
Platinum Partners’ Securities Fraud Convictions Upheld