United States v. Landesman
| Decision Date | 05 November 2021 |
| Docket Number | Docket Nos. 19-3207-cr/19-3209-cr,August Term, 2020 |
| Citation | 17 F.4th 298 |
| Parties | UNITED STATES of America, Appellant, v. Uri LANDESMAN, Joseph Sanfilippo, Joseph Mann, Daniel Small, Jeffrey Shulse, Defendants, David Levy, Mark Nordlicht, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Second Circuit |
Lauren Howard Elbert, Assistant United States Attorney (Kevin Trowel, David Pitluck, Lauren Howard Elbert, Patrick Hein, Assistant United States Attorneys, on the brief), for Jacquelyn M. Kasulis, Acting United States Attorney for the Eastern District of New York;
Michael S. Sommer (Morris J. Fodeman, Katherine T. McCarthy, on the brief), Wilson Sonsini Goodrich & Rosati, P.C., for Defendant-Appellee David Levy;
William A. Burck (Daniel R. Koffman, on the brief), Quinn Emanuel Urquhart & Sullivan, LLP, for Defendant-Appellee Mark Nordlicht.
Before: Sack, Chin, and Lohier, Circuit Judges.
This appeal concerns a scheme allegedly executed by defendants-appellees Mark Nordlicht and David Levy to defraud bondholders of an oil and gas company, Black Elk Energy Offshore Operations, LLC ("Black Elk"), of the proceeds of a lucrative asset sale to Renaissance Offshore, LLC (the "Black Elk Scheme"). In connection with their participation in the Black Elk Scheme, the defendants were both convicted of securities fraud, conspiracy to commit securities fraud, and conspiracy to commit wire fraud.
Central to the alleged Black Elk Scheme was a New York-based hedge fund known as Platinum Partners L.P. ("Platinum"). Platinum consisted of multiple investment funds, including Platinum Partners Value Arbitrage Fund, L.P. ("PPVA"), Platinum Partners Credit Opportunities Master Fund, L.P. ("PPCO"), and Platinum Partners Liquid Opportunity Master Fund, L.P. ("PPLO"). Nordlicht and others founded Platinum in 2003, and Nordlicht was the Chief Investment Officer ("CIO") of PPVA, PPCO, and PPLO. Platinum also had a relationship with a reinsurance company named Beechwood, which was founded in or around early 2014 by a group of investors that included Nordlicht. Beechwood included several entities: Beechwood Bermuda International Ltd. ("BBIL"), Beechwood Re, and B Asset Management ("BAM"). Levy worked at Platinum as a portfolio manager. In early 2014, Levy left Platinum and joined Beechwood as its CIO. He later returned to Platinum where he became co-CIO with Nordlicht.
One of Platinum's largest investments was in Black Elk, an oil and gas company headquartered in Houston, Texas. In 2010, Black Elk raised capital by issuing $150 million in bonds. Black Elk also issued a Series E preferred security in early 2013, of which Platinum purchased the majority.
But Black Elk experienced significant financial setbacks between 2012 and 2014. An explosion in November 2012 at one of its offshore oil platforms in the Gulf of Mexico, coupled with ensuing civil litigation and regulatory scrutiny, resulted in a sharp decline in its business. Black Elk was also plagued by rampant mismanagement and poor financial planning. By 2014, it appeared to be spiraling towards bankruptcy.
At trial, the government alleged that Nordlicht, Levy, and their co-conspirators sought to limit Platinum's losses in the event of a Black Elk bankruptcy. They did so by orchestrating the sale of Black Elk's most valuable assets, and fraudulently manipulating the priority structure by which Black Elk debt and equity holders would be repaid to ensure that the proceeds of any asset sales went to the preferred equity holders (among whom Platinum was prominent) instead of the bondholders who would have otherwise had priority to those proceeds. In order to modify the priority structure, it was necessary for a majority of the outstanding bonds to consent (against their interest) to an amendment to the bond indenture. The government alleged that the defendants rigged the vote of bondholders by fraudulently concealing their control over certain bonds – in violation of the bond indenture – to ensure that the amendment would pass. As a result of this alleged fraud, the defendants unlawfully diverted nearly $100 million in asset sale proceeds from the bondholders to the preferred equity holders – who were not entitled to it – to Platinum's benefit.
After a nine-week trial, a jury convicted Nordlicht and Levy on the charges related to the Black Elk Scheme. After the verdict, Nordlicht and Levy both moved for judgments of acquittal or, in the alternative, for new trials. The district court denied Nordlicht's motion for a judgment of acquittal, concluding that "when viewed in the light most favorable to the Government, the Government adduced sufficient evidence ... to make a judgment of acquittal under Rule 29 inappropriate." United States v. Nordlicht , No. 16-cr-00640 (BMC), 2019 WL 4736957, at *9 (E.D.N.Y. Sept. 27, 2019). Despite this, however, the district court concluded that "letting the verdict stand against Nordlicht would be a manifest injustice" and therefore granted his motion for a new trial. Id. at *16. The district court separately granted Levy's motion for a judgment of acquittal, reasoning that "[e]ven making reasonable inferences in favor of the Government, and deferring to the role of the jury in weighing evidence and assessing credibility, the Government failed to meet its burden of proving beyond a reasonable doubt that Levy had criminal intent." Id. at *14. The district court also "conditionally grant[ed] Levy's motion for a new trial in the event that the judgment of acquittal [was] later vacated or reversed." Id. at *18. The government now appeals.
For the reasons set forth below, we conclude that the district court erred in granting the defendants’ respective Rule 29 and Rule 33 motions. We therefore vacate the district court's judgment of acquittal as to Levy, vacate the district court's order granting new trials to Levy and Nordlicht, and remand for further proceedings consistent with this opinion.
Defendant-appellee Mark Nordlicht and his two partners, Murray Huberfeld and David Bodner, founded Platinum – a New York-based hedge fund – in 2003. Platinum consisted of multiple investment funds, which included PPVA, PPCO, and PPLO. Nordlicht was the CIO of Platinum and its various hedge funds, and in his role as CIO, Nordlicht made the "final decision" regarding investments. GA.194.
Defendant-appellee David Levy is Huberfeld's nephew. Levy worked as a portfolio manager at Platinum until around early 2014. As a portfolio manager, Levy was responsible for overseeing some of Platinum's portfolio investments, as well as finding other potential investment opportunities. One of Platinum's largest investments, on which Levy worked, was in a company named Black Elk.
In early 2014, Levy left Platinum to join a reinsurance company, Beechwood, as its CIO. Around late 2014 or early 2015, after his brief stint as Beechwood's CIO, Levy returned to Platinum as its co-CIO alongside Nordlicht.
a) Platinum's Relationship with Black Elk
Black Elk was a Houston-based oil and gas exploration company that held and managed valuable oil and gas assets in the Gulf of Mexico. Black Elk raised money for its operations by issuing common equity as well as various forms of debt. In November 2010, Black Elk issued $150 million of publicly traded senior secured bonds. In 2013, to raise additional capital, Black Elk also issued a Series E preferred security, which functioned like debt. In the event of a bankruptcy or liquidation, the secured bondholders would be paid first, followed by those with preferred equity and then those with common equity.
Platinum was a significant investor in Black Elk. Levy and Daniel Small – another portfolio manager at Platinum – co-managed Platinum's position in the company. PPVA continued investing in Black Elk over time. By 2014, PPVA owned 85% of Black Elk's common equity. As of 2014, PPVA, PPLO, and PPCO also held most of its preferred equity.
Because of Platinum's significant investments in Black Elk, Nordlicht, Levy, and Small were involved in Black Elk's management. Nordlicht, Levy, and Small maintained close communication with Black Elk management, including its co-founder and Chief Executive Officer ("CEO") John Hoffman, Chief Financial Officer ("CFO") Jeffrey Shulse, Chief Technical Officer Art Garza, and Vice President of Operations Joseph Bruno. For example, Black Elk management met with Nordlicht, Levy, and Small to discuss prospective Black Elk acquisitions and strategic objectives. Nordlicht, Levy, and Small also often worked out of Black Elk's offices and participated in its management meetings.
The relationship between Black Elk and its bondholders was governed by an indenture (the "Indenture"). The Indenture contains several key provisions, including ones that govern the use of proceeds from an asset sale (Section 4.10), establish limitations on Black Elk's annual capital expenditures (Section 4.21), set forth the circumstances under which a default could be called and waived (Sections 6.01 and 6.04), and establish the procedure for amending the Indenture (Article 9).
Under Section 4.10(b) of the Indenture, Black Elk could use any asset sale proceeds: (1) to repay indebtedness, including money owed to Black Elk bondholders; (2) to acquire assets of an oil and gas business; (3) to acquire the majority of the voting stock of an oil and gas business; or (4) to make capital expenditures or acquire long-term assets for its oil and gas business. Under the Indenture, the proceeds from a sale of Black Elk's assets could not be paid to any equity holder.
Section 4.21 of the Indenture sets forth strict limitations on Black Elk's capital expenditures in any one year. Section 6.01 provides that holders of 25% of the aggregate principal amount of the bonds may call a default alleging that Black Elk violated the terms of the...
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