A Ponzi Case Ends in a Bust, But a Damaged Reputation Lasts Forever

His name is Mark Nordlicht, and while his is not a household name, we would all do well to heed the tale of his unwarranted downfall.

With the help of overzealous federal prosecutors, the court of public opinion played an immense role in perpetrating an unfairness against Mr. Nordlicht that compromised his ability to defend himself in court against charges of financial fraud. Even after being granted leniency by a U.S. District Court in a recent hearing, Mr. Nordlicht faces another, grievous sentence: the permanent loss of his reputation.

For Mr. Nordlicht, the founder and CEO of the New York City-based hedge fund Platinum Partners, merely having his name associated with the phrase “Ponzi Scheme” more than a decade ago became tantamount to a professional death sentence.

After years of battling to clear his name of much-hyped allegations of financial misconduct, particularly in the now infamous “Black Elk” case, U.S. District Judge Brian Cogan just sentenced Mr. Nordlicht to a mere six months of home confinement along with a $5,000 fine, a slap on the wrist when compared to the crimes and sentences of actual Ponzi perpetrators such as Bernie Madoff.

Mr. Nordlicht’s personal and professional purgatory began in 2016 with whispered and unsubstantiated accusations of wrongdoing due to the unlawful conduct of an associate. Unjustified charges of operating a “Ponzi-like” scheme followed, bolstered by leaks from prosecutors and FBI officials that generated an avalanche of unfavorable and defamatory headlines. Consequently, even though Mr. Nordlicht was acquitted of the Ponzi charges, the trust and goodwill that he had so painstakingly cultivated with investors over time eroded overnight. Despite government prosecutors losing the high-profile Ponzi scheme charges, they stayed in hot pursuit of him, this time by alleging fraud in Mr. Nordlicht’s Black Elk investment activities, in which Platinum cashed out of oil and energy bonds.

In that case, DOJ correctly observed that Platinum Partners and its associated entities, held a lion’s share of Black Elk bonds. However, what went unsaid by the prosecution was that a formal Platinum Partners proposal to revise the original compensation agreement was made known to Black Elk and its law firm of record well in advance of the shareholder vote.

In short, no deception or fraud was involved. Operating a hedge fund demands an in-depth knowledge of the exceptional complexity of various market occurrences, the unusual risks involved and hence the greater flexibility needed for success versus more conventional investment vehicles. Fearing that the jury lacked sufficient familiarity with general hedge fund policies and practices to adequately fulfill its required fact finding duties, the court rightly took exception to that portion of the government’s case regarding the fraud claims to the proposed Platinum Partner compensation revision. But even beyond that consideration, Judge Cogan determined that the prosecution simply lacked the necessary anchors of both fact and evidence and accordingly found it essential to limit the government’s scope in prosecuting the case.

Still, a jury–undoubtedly swayed by the government’s pre-trial showboating of the empty Ponzi charges–found Mr. Nordlicht guilty of lesser charges. Judge Cogan rightly set aside the conviction and ordered a new trial. The DOJ protested, Mr. Nordlicht’s appeal failed, and the jury verdict stuck. At sentencing, Judge Cogan said of Mr. Nordlicht, “It’s not like stealing money. It’s not like Madoff or something like that.” Cogan noted that the original DOJ press release referred to a “$1.5 billion Ponzi scheme” for which the defendants “were not just acquitted, I mean it was a very weak case,” and sent Mr. Nordlicht home.

With the Black Elk verdict in the rearview mirror, we can plainly see that the court’s sentencing of Mr. Nordlicht saw through the DOJ’s game plan of playing to the headlines to try to force a plea or a stiff sentence. It bears repeating that from the beginning, the prosecution’s strategy not only violated the government’s policies but the very legality of using pre-trial government leaks that ended up unfairly setting the stage for the prosecution’s success during the Black Elk jury trial. Judge Cogan’s lenient sentence is a compelling example of the judicial system’s vital role of going behind the headlines not only to assess Mr. Nordlicht’s standard business maneuvers and specific investment tactics according to legal standards but, additionally, determining his intent by reviewing his general character and penchant for acting with integrity. It is telling that Mr. Nordlicht’s Black Elk strategy resulted in his personal bankruptcy thereby inescapably providing evidence that he did not possess the intent to devise an escape plan that would leave himself high and dry should the investment fail.

Mr. Nordlicht’s refusal to bow to the court of public opinion for the better part of a decade is to be applauded. It demonstrates an exceptional affirmation to both his personal fortitude and resilience. Further investigation into this Mr. Nordlicht’s character shows a man that, like us, is all about doing right by others and, if necessary, will go to any length to make his case in both federal court and the court of public opinion. In fact his character is evident by the philanthropic contributions he’s made as well as numerous past instances of assisting others with no expectation of future profit or favor. Nonetheless, despite the court’s subsequent grant of a well-deserved and overdue measure of vindication, both Mr. Nordlicht’s reputation and business prospects remain at grave risk.

The court has spoken. We should listen. Mark Nordlicht deserves better.

John Banks-Brooks is a former Attorney for the Securities and Exchange Commission and served as an Attorney with New York City’s Corporation Counsel.