Cayman hedge fund files for US bankruptcy protection

Two Cayman-registered Platinum Partners hedge funds filed for U.S. Chapter 15 bankruptcy protection in a New York federal court last week.

Platinum Partners co-founder Murray Huberfeld
Platinum Partners co-founder Murray Huberfeld

The two offshore versions of the Platinum Partners Value Arbitrage fund were put into liquidation by the Cayman Islands Grand Court in August.

As part of the insolvency proceedings, RHSW Caribbean, the Cayman liquidator, filed for U.S. bankruptcy to block creditor claims on the funds’ U.S. assets until the Cayman insolvency proceedings are complete.

New York-based Platinum announced in June it was going to unwind its flagship fund, days after co-founder and former executive Murray Huberfeld was arrested for an alleged bribe payment to the president of the New York City corrections officers’ union in return for a $20 million investment. Huberfeld has denied the charges.

Since then, Platinum has been caught up in a federal investigation by the U.S. Attorney’s Office in Brooklyn during which the company’s offices were raided by the FBI. The focus of the investigations is unknown.

In their bankruptcy filing, the Cayman liquidators, Matthew Wright and Christopher Kennedy, state they have already begun examining allegations of asset overvaluation and will execute a detailed investigation into what caused the funds’ insolvency.

Since they started their work, the liquidators have been in direct contact with the Securities and Exchange Commission and the U.S. Attorney’s Office about their current and planned actions.

Platinum reported assets of $1.09 billion for the funds as of June 30 and potential liabilities of at least $468.7 million on May 31.

In the Chapter 15 filing, the Cayman liquidators said the funds are experiencing severe and substantial liquidity problems that could result in the devaluation of the funds’ assets and assets held by wholly owned subsidiaries of the funds.

To protect the assets, the liquidators are in negotiations with third-party funds and investors as well as insider shareholders and creditors to obtain financing and carry out short-term asset sales to raise additional capital.

These actions include the sale of Implant Sciences Corp. notes to Platinum “insiders” and the potential investment by the Master Fund in Northstar Offshore Group LLC to avoid the continuation of its involuntary bankruptcy.

Because Northstar accounts for about 22 percent of the funds’ assets, the company’s bankruptcy would result in a significant devaluation of the Platinum funds, the liquidators said.

In April, news agency Reuters featured a special report on Platinum, noting that the fund has a history of investing in controversial businesses.

In the pursuit of outsize returns, Platinum “put money into a consumer finance company repeatedly fined for predatory lending before and after Platinum’s involvement, a pair of investments that turned out to be Ponzi schemes, and two energy companies that later went bankrupt and are facing criminal charges,” Reuters reported.

A previous report in October 2015 by Bloomberg news raised similar issues and caused one of the funds’ investors, Parris, to request the full redemption of its shares. Parris filed a creditor’s petition to liquidate and wind-up the funds in July, after the redemption request was not complied with.