Troubled hedge fund manager Platinum Partners was ordered by a U.S. bankruptcy judge to temporarily freeze approximately $118 million after a lawsuit Wednesday accused it of illegally stripping key assets from a now-collapsed energy company.
The complaint, filed on behalf of a trustee representing creditors of Black Elk Energy Offshore Operations, LLC, alleges that Platinum is liable for more than $200 million in assets it improperly transferred into its various funds from Black Elk, effectively killing the company.
Platinum was able to unfairly profit from Black Elk, according to the suit in Federal bankruptcy court, through a coordinated scheme with Beechwood, a reinsurance business with close ties to Platinum.
The two parties allegedly rigged a Black Elk bond vote in 2014 that allowed Platinum to pocket proceeds from a major asset sale, instead of creditors and secured note holders that included AQR Capital Management.
That apparent coordination by Beechwood and Platinum was featured in a Reuters’ investigation published in April.
U.S. bankruptcy judge Marvin Isgur wrote in his order Wednesday that “the allegations … reflect a pattern of fraud and abuse by Platinum” and there is a “reasonable probability that fraud has occurred.”
A spokesman for Platinum, led by Mark Nordlicht, declined to comment. A spokesman for Beechwood, led by Mark Feuer, did not immediately respond to a request for comment.
Houston-based Black Elk entered into bankruptcy in 2015 and is now being dissolved. A litigation trust remains in an effort to repay creditors following what attorney Craig Smyser called an “outrageous plundering” of the company.
Platinum, once a high-performing, $1.35 billion hedge fund manager based in New York, has been in crisis for months.
A longtime associate of the firm was arrested in June, federal regulators are investigating the firm, and its main funds are being liquidated under the supervision of a pair of monitors. Most recently, its flagship hedge fund filed for bankruptcy protection on October 18.
Beechwood also faces pressure from the investments it made in Platinum funds and related companies including Black Elk on behalf of insurance companies such as CNO Financial Group Inc and Senior Health Insurance Company of Pennsylvania.
In September, two CNO subsidiaries sued current and former Beechwood executives, accusing them of breach of fiduciary duty and fraud, among other things related to the reinsurer’s ties to Platinum.
A spokesman for Beechwood said at the time that his client had “acted properly at all times.”
