Platinum Partners to Shut Down Main Fund; Here Are Its 5 Stock Picks

Platinum Partners, the New York-based hedge fund that is in the midst of two investigations, recently informed its investors that it will be liquidating its flagship Platinum Partners Value Arbitrage Fund. In addition, the firm is also considering closing down its Platinum Partners Credit Opportunities Fund. In mid-June, one of the firm’s early backers and close associates, Murray Huberfeld, was arrested on charges of bribing the president of the New York City prison officers’ union, Norman Seabrook. Platinum Partners’ operations have also come under the scrutiny of a separate group of federal prosecutors, who are investigating the practices and dealings of the firm, with the Federal Bureau of Investigation (FBI) involved in the investigation.

Platinum Partners was founded by Mark A. Nordlicht in 2003. Since its inception, the two funds run by the hedge fund vehicle have never reported a down year. Its flagship fund has generated an average annualized return of 17% from inception through the end of April 2016. However, a lot of the returns generated by Platinum Partners have come from unconventional asset classes rather than equities. As of March 31, the fund’s U.S equity portfolio was worth only $16.43 million and consisted of long positions in only five stocks. In this article, we will discuss these five stocks that Platinum Partners was betting on heading into the second quarter of this year.

We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012 (see the details here).

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#5 InspireMD Inc (NYSEMKT:NSPR)

 – Shares owned by Platinum Partners (as of March 31): 2,445

 – Value of holding (as of March 31): $1,000

Let’s start with InspireMD Inc (NYSEMKT:NSPR), in which Platinum Partners left its stake unchanged during the first quarter. The medical device company has lost almost 99% of its market capitalization since early-2014 and currently trades down by 59% in 2016. On March 29, analysts at Rodman & Renshaw reiterated their ‘Buy’ rating on the stock, but lowered their price target on it to $3.00 from $4.00, which nonetheless represents potential upside of 1,150% from the stock’s current price. Last month, the company announced that its current Chief Operating Officer James Barry, Ph.D., will be succeeding Alan Milinazzo as the President & CEO of the company. Mr. Barry has served on InspireMD Inc (NYSEMKT:NSPR)’s Board since 2012 and has been the COO of the company for the past two years.

#4 You On Demand Holdings, Inc. (NASDAQ:YOD)

 – Shares owned by Platinum Partners (as of March 31): 3,015

 – Value of holding (as of March 31): $6,000

You On Demand Holdings, Inc. (NASDAQ:YOD) was another miniscule position held by Platinum Partners at the end of the first quarter. While Platinum Partners didn’t make any change to its stake in the company during the period, billionaire Israel Englander‘s Millennium Management sold off its entire stake in the company during that time. For much of 2015, You On Demand Holdings, Inc. (NASDAQ:YOD)’s stock hovered near the $2.00 mark. However, it has been finding it extremely hard to recapture that mark after breaking below it in December and is currently trading down by 13.2% this year. In a regulatory filing earlier in June, the Chinese video-on-demand service provider revealed that it has entered into a joint venture with Megtron Hongkong to promote and market mobile apps. The venture has a registered capital of $10 million and three of its five Board members have been nominated by You On Demand Holdings, Inc.

On the following page we’ll check out the favorite three stocks of Platinum Partners.

#3 Pedevco Corp (NYSEMKT:PED)

 – Shares owned by Platinum Partners (as of March 31): 3.41 million

 – Value of holding (as of March 31): $631,000

Moving on, Platinum Partners inched up its stake in Pedevco Corp (NYSEMKT:PED) by 1% during the first quarter. Last May, the company had priced its secondary public offering of 5.6 million shares at $0.50 per share, which had caused its stock to slump by 25%. Within a few days of that the stock fell further, by over 10% after Pedevco announced that it had agreed to acquire the U.S assets of Dome Energy in an $87 million all-stock deal. The rally in crude oil prices this year has helped most oil companies’ stocks to post positive gains, but Pedevco Corp (NYSEMKT:PED)’s is still trading down by nearly 3% year-to-date and by almost 95% from its mid-2013 highs.

#2 Echo Therapeutics Inc (NASDAQ:ECTE)

 – Shares owned by Platinum Partners (as of March 31): 829,183

 – Value of holding (as of March 31): $1.08 million

With Platinum Partners making no change to its stake in Echo Therapeutics Inc (NASDAQ:ECTE) during the first quarter, the company continued to remain the fund’s second-largest equity position. The only other hedge fund in our system that held a stake in Echo Therapeutics Inc (NASDAQ:ECTE) at the end of March was billionaire Ken Griffin‘s Citadel Investment Group, which initiated its stake in the company during the first quarter, purchasing 27,954 shares. On May 20 the company reported its first quarter financial results, declaring a loss per share of $0.23, an improvement from the loss per share of $0.72 that it reported a year earlier. The company spent $0.7 million on R&D during the first quarter, $0.1 million less than what it had spent during the same quarter of the previous year.

#1 Navidea Biopharmaceuticals Inc (NYSEMKT:NAVB)

 – Shares owned by Platinum Partners (as of March 31): 15.57 million

 – Value of holding (as of March 31): $14.71 million

Platinum Partners boosted its stake in Navidea Biopharmaceuticals Inc (NYSEMKT:NAVB) by 352% during the first quarter. Shares of the biopharmaceutical company have fallen significantly since May and are currently trading down by over 55% year-to-date. A large part of the decline came after the company’s accounting firm, BDO USA, LLP resigned on May 3, which analysts and investors took as a sign that something was wrong with the company’s financials. The company later disclosed in a regulatory filing that it had lost its request for temporary injunctive relief against financier Capital Royalty Partners II. L.P. In April, Capital Royalty Partners had informed Navidea Biopharmaceuticals that it had defaulted on its loan agreement with the financing firm. However, Navidea Biopharmaceuticals Inc (NYSEMKT:NAVB) has so far denied that is in default. Citadel Investment Group reduced its stake in the company by 69% to 12,279 shares during the first quarter.

Disclosure: None