Federal prosecutors in the 2019 Platinum Partners securities trial last week fired their opening salvo in their appeal of a federal judge’s ruling that threw out guilty verdicts of two of the hedge fund’s executives.
After a nine-week trial that ended in July, Platinum founder and CIO Mark Nordlicht and co-CIO David Levy were found guilty on three securities charges. But just a few months later, federal District Judge Brian Cogan overturned the Levy verdicts and agreed to a new trial for Platinum founder Mark Nordlicht.
“The district court failed to view the evidence as a whole and instead usurped the role of the jury by imposing its own view of the evidence” in its rulings, U.S. Attorney Richard Donoghue of the Eastern District of New York argued in a brief filed Jan. 7 in the Second Circuit Court of Appeals. Others who signed the brief included U.S. assistant attorneys David Pitluck and Patrick Hein, both of whom were prosecutors at the Platinum Partners trial.
Rulings like Judge Cogan’s are rare, and criminal defense attorneys said they know of no other cases in which he has overturned a jury’s verdict.
“It’s rare because the standard for the defense is so high. You look at the evidence in the light most favorable to the government, drawing all inferences in their favor, and all credibility findings in their favor,” explained one white-collar defense attorney.
The government attorneys cited numerous court precedents knocking such rulings down. For example, they noted a case that found that a jury verdict must be upheld “if any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt.”
In its brief, the government doubled down on its allegation that Nordlicht and Levy “lied to innocent investors in connection with a scheme to fraudulently manipulate a vote among bondholders in Black Elk Energy.”
Black Elk was facing bankruptcy, and Platinum wanted to extract money from it before the company failed, according to the government. It argued that the scheme allowed millions of dollars to be illegally distributed to investors in Platinum’s funds, which were facing massive redemption requests amid poor returns.
When Judge Cogan threw out Levy’s convictions, he said there was insufficient evidence to prove Levy was involved in what prosecutors claimed was a plan to move Black Elk’s bonds into investment accounts at a reinsurance company called Beechwood that it alleges was “controlled” by Platinum. That move enabled a majority of bondholders to vote to change covenants to allow the struggling oil and gas company to pay off its preferred equity holders, which included Platinum’s hedge funds, ahead of the more senior bondholders.
Under the bond covenants, those votes would not be counted if they were held by an affiliate of Platinum. The defense’s main argument has been that Beechwood — where Levy was working at the time — was not legally an affiliate of Platinum, making the votes legal. Moreover, since Platinum owned both preferred equity and bonds, they argued, it had no motive for the scheme.
Still prosecutors claimed that “contemporaneous email correspondence makes clear that Levy, Nordlicht and their co-conspirators were deeply involved in the execution of the bondholder vote and ensuring the success of the scheme.”
They added that the court erred because it did not consider the government’s theory and its evidence “in its totality,” instead focusing on three categories of evidence in isolation. It also did not consider “Levy’s role in the entities relevant to the fraud, the incriminating correspondence among Levy and his coconspirators, and his role in disbursing the proceeds of the fraud.”
“When all of this evidence, together with the three ‘categories’ identified by the district court, is considered together, and all inferences are drawn in favor of the government, there is ample support for the jury’s verdict,” wrote Donoghue.
As for Nordlicht, the government argued that the ruling granting him a new trial “is premised on a misunderstanding of a district court’s authority to set aside a jury’s verdict,” which it says “does not empower a district court to reject the concededly reasonable inferences drawn by the jury — the same inferences that supported the district court’s decision to deny” Nordlicht’s motion for acquittal.
The appeals process could take more than a year, according to lawyers familiar with the case. In the meantime, two other Platinum executives —whose cases on similar charges were severed from this one — have yet to be tried.