1 00:00:00,040 --> 00:00:02,680 Speaker 1: For more than a decade, Platinum Partners reported some of 2 00:00:02,720 --> 00:00:05,680 Speaker 1: the biggest gains in the head hedge fund industry. Now 3 00:00:05,760 --> 00:00:09,600 Speaker 1: federal prosecutors say it was based on lives. This week, 4 00:00:09,640 --> 00:00:13,280 Speaker 1: Platinum co founder Mark Nordlick and six associates were charged 5 00:00:13,320 --> 00:00:16,800 Speaker 1: with perpetrating a one billion dollar fraud. They are accused 6 00:00:16,840 --> 00:00:20,079 Speaker 1: of inflating the book value of unprofitable oil projects to 7 00:00:20,120 --> 00:00:23,119 Speaker 1: make the funds performance look better as they struggled to 8 00:00:23,200 --> 00:00:27,320 Speaker 1: keep investors and attract new ones. Here is Brooklyn u 9 00:00:27,360 --> 00:00:32,680 Speaker 1: s attorney Robert Caper's These defendants defrauded Platinums investors by 10 00:00:32,680 --> 00:00:37,120 Speaker 1: falsely portraying that their flagship had hedge fund p p 11 00:00:37,240 --> 00:00:42,040 Speaker 1: b A was thriving when in fact was not, and 12 00:00:42,040 --> 00:00:45,720 Speaker 1: by overvaluing its assets when in reality the assets were doomed. 13 00:00:47,240 --> 00:00:50,600 Speaker 1: Capers called the alleged scheme Ponzi esque. It's among the 14 00:00:50,600 --> 00:00:53,600 Speaker 1: biggest of its kind since Bernie Madouse firm collapsed in 15 00:00:53,600 --> 00:00:56,520 Speaker 1: two thousand eight. Nordlick and the other defendants and are 16 00:00:56,640 --> 00:01:00,080 Speaker 1: not guilty. Please on Monday with us to discuss this 17 00:01:00,240 --> 00:01:03,480 Speaker 1: latest hedge fund swindling case. Is Robert Hockett, a professor 18 00:01:03,560 --> 00:01:08,520 Speaker 1: at Cornell University Law School. Bob, thanks for joining us, Uh, 19 00:01:08,760 --> 00:01:12,600 Speaker 1: of course, thank you. What happened here? How did Platinum 20 00:01:12,600 --> 00:01:14,960 Speaker 1: in order like get to the situation where they were 21 00:01:15,000 --> 00:01:19,360 Speaker 1: allegedly cheating their investors? Well, it looks like sort of 22 00:01:19,360 --> 00:01:21,880 Speaker 1: a classic Ponti type scheme, in fact that many people 23 00:01:21,880 --> 00:01:23,479 Speaker 1: are referring to it as a sort of mini made 24 00:01:23,480 --> 00:01:26,560 Speaker 1: offs because it essentially seems to have replicated the replicated 25 00:01:26,560 --> 00:01:30,120 Speaker 1: the method that that the made off used, um, the 26 00:01:30,120 --> 00:01:33,160 Speaker 1: only difference being that here we're talking about one billion. 27 00:01:33,400 --> 00:01:36,240 Speaker 1: But effectually what happens is, um, you know, when you're 28 00:01:36,319 --> 00:01:39,000 Speaker 1: under performing, uh, and you're not able to pay off 29 00:01:39,040 --> 00:01:41,360 Speaker 1: your initial investors what you owe them or what the 30 00:01:41,400 --> 00:01:45,720 Speaker 1: planbering for you simply why about how the fund is 31 00:01:45,760 --> 00:01:48,680 Speaker 1: performing in order to attract new investors, and then the 32 00:01:48,720 --> 00:01:51,000 Speaker 1: money that they put in you use to go ahead 33 00:01:51,040 --> 00:01:53,480 Speaker 1: and pay off some of those older investors, and you 34 00:01:53,560 --> 00:01:57,520 Speaker 1: just sort of keep on iterating that particular method for 35 00:01:57,560 --> 00:02:01,360 Speaker 1: as long at you'd be, Bob. When you hear about 36 00:02:01,360 --> 00:02:04,840 Speaker 1: this going on for a decade, people are a bit stunned. 37 00:02:04,840 --> 00:02:07,640 Speaker 1: Why wasn't this discovered sooner? But is it in the 38 00:02:07,760 --> 00:02:10,280 Speaker 1: nature of a Ponzi scheme? That it takes a while 39 00:02:10,440 --> 00:02:13,000 Speaker 1: for it to be discovered. Um. I don't think it's 40 00:02:13,000 --> 00:02:14,799 Speaker 1: in the nature of a ponzi scheme that it takes 41 00:02:14,800 --> 00:02:18,080 Speaker 1: a while to be discovered. UM. Necessarily, it all really 42 00:02:18,120 --> 00:02:20,560 Speaker 1: depends on what kind of monitoring is being done and 43 00:02:20,600 --> 00:02:23,959 Speaker 1: how closely the particular funds are being watched. I think 44 00:02:23,960 --> 00:02:27,000 Speaker 1: what's probably more important here is the fact that hedge 45 00:02:27,000 --> 00:02:29,480 Speaker 1: funds are typically viewed, or tend to be viewed as 46 00:02:29,560 --> 00:02:33,440 Speaker 1: catering to a more sophisticated clientele, who are accordingly viewed 47 00:02:33,919 --> 00:02:36,600 Speaker 1: by the regulators and by prosecutors as being sort of 48 00:02:36,720 --> 00:02:39,519 Speaker 1: less in need of protection, right, more capable of sort 49 00:02:39,520 --> 00:02:42,200 Speaker 1: of looking out for themselves. And in consequence, I don't 50 00:02:42,200 --> 00:02:44,320 Speaker 1: think we tend to be as digilant when it comes 51 00:02:44,360 --> 00:02:48,680 Speaker 1: to sort of over overseeing the operations of hedge funds. 52 00:02:48,880 --> 00:02:51,320 Speaker 1: Um in a in a kind of proactive way, we 53 00:02:51,520 --> 00:02:54,880 Speaker 1: just wait for something to be discovered. UM. Maybe the 54 00:02:55,000 --> 00:02:58,120 Speaker 1: nature of a ponzi scheme plays a role here in 55 00:02:58,160 --> 00:03:01,239 Speaker 1: the sense that oftentimes the problem isn't the Stubbard until, 56 00:03:01,320 --> 00:03:03,799 Speaker 1: of course, the funds runs out of new investors to 57 00:03:03,840 --> 00:03:05,920 Speaker 1: sort of bring in to pay off the older investors, 58 00:03:06,320 --> 00:03:09,959 Speaker 1: or until some you know, incidental event occurs which then 59 00:03:10,240 --> 00:03:12,679 Speaker 1: draws attention to the fund, and that ladder seems to 60 00:03:12,720 --> 00:03:16,160 Speaker 1: be what happened here? We were there warning signs that 61 00:03:16,200 --> 00:03:19,600 Speaker 1: investors should have been able to see here. Platinum's main 62 00:03:19,639 --> 00:03:24,680 Speaker 1: funds reported no down years, virtually no down months throughout 63 00:03:24,720 --> 00:03:28,920 Speaker 1: this time. Should it have seemed seemed too good to 64 00:03:28,919 --> 00:03:32,440 Speaker 1: be true? Um, it's you know, it's hard to tell 65 00:03:32,480 --> 00:03:34,960 Speaker 1: on them. I mean, in a certain sense. Yes, Um, 66 00:03:35,000 --> 00:03:40,000 Speaker 1: it's very unusual for any one firm, or anyone investor, 67 00:03:40,480 --> 00:03:44,000 Speaker 1: or any one manager or investment professional to outperform the 68 00:03:44,040 --> 00:03:47,040 Speaker 1: market as a whole consistently for many, many years on end. 69 00:03:47,480 --> 00:03:49,360 Speaker 1: And in that sense you can say that we had 70 00:03:49,360 --> 00:03:51,160 Speaker 1: a sort of red flag here, or at the very 71 00:03:51,240 --> 00:03:54,080 Speaker 1: least a kind of orange flag. On the other hand, 72 00:03:54,120 --> 00:03:55,720 Speaker 1: it is also in the nature of these kinds of 73 00:03:55,760 --> 00:03:58,520 Speaker 1: funds that those who invested in them tend to be 74 00:03:58,600 --> 00:04:01,640 Speaker 1: relatively passive investors for the most part, and tends, you know, 75 00:04:01,800 --> 00:04:04,600 Speaker 1: basically to leave the driving to us, so to speak, 76 00:04:04,600 --> 00:04:08,160 Speaker 1: and to sort of channel the old greyhound commercial. So 77 00:04:08,240 --> 00:04:10,640 Speaker 1: they tend to entrust their funds to somebody they trust, 78 00:04:10,640 --> 00:04:14,160 Speaker 1: like Mr Nordlanch and and just kind of basically assume 79 00:04:14,240 --> 00:04:16,279 Speaker 1: that they're dealing with somebody who has integrity and that 80 00:04:16,320 --> 00:04:18,200 Speaker 1: they're not being lined to. That's not to say that 81 00:04:18,200 --> 00:04:20,120 Speaker 1: they should do that, but that does tend to be 82 00:04:20,360 --> 00:04:22,160 Speaker 1: the habit of many of the investors and funds of 83 00:04:22,240 --> 00:04:26,039 Speaker 1: this kind. I know that we're very early in the 84 00:04:26,120 --> 00:04:30,200 Speaker 1: proceedings and we don't know that many facts, But what 85 00:04:30,400 --> 00:04:33,920 Speaker 1: do you can you think of some possible defenses here 86 00:04:34,200 --> 00:04:36,720 Speaker 1: would just be based on the facts, or are there 87 00:04:36,760 --> 00:04:41,320 Speaker 1: other defenses? I you know, frankly, if the allegations that 88 00:04:41,440 --> 00:04:44,840 Speaker 1: were announced yesterday are are true, I mean, if if 89 00:04:44,880 --> 00:04:47,479 Speaker 1: these are correct, um, it's hard for me to see 90 00:04:47,480 --> 00:04:49,640 Speaker 1: any defense at all that could be offered here. Just 91 00:04:50,080 --> 00:04:52,159 Speaker 1: you know, it doesn't get any better than this, for 92 00:04:52,279 --> 00:04:54,919 Speaker 1: as far as prosecutors are concerned. Right if we're talking 93 00:04:54,920 --> 00:04:59,919 Speaker 1: about just outright fraud, not even misleading statements or omissions, 94 00:05:00,279 --> 00:05:04,680 Speaker 1: but just outrighte commissive fraud, where the performance of particular 95 00:05:04,720 --> 00:05:07,520 Speaker 1: funds in which this fund has invested is simply are 96 00:05:07,560 --> 00:05:11,240 Speaker 1: are simply misrepresented, are simply wied about. If again, I 97 00:05:11,240 --> 00:05:13,400 Speaker 1: don't know that these allegations are correct, I don't know 98 00:05:13,400 --> 00:05:15,760 Speaker 1: why they wouldn't be. But if they are then it's 99 00:05:15,839 --> 00:05:18,720 Speaker 1: very hard to imagine a new defense. I want to 100 00:05:18,760 --> 00:05:22,919 Speaker 1: thank our guest Bob Hockett of Cornell University's Law School, 101 00:05:22,960 --> 00:05:28,240 Speaker 1: talking about the latest hedge fund swindling allegations. Thanks so 102 00:05:28,320 --> 00:05:29,400 Speaker 1: much for being here with us.