By JONATHAN RANDLES From Wall Street Journal

Judge grants Platinum fund recognition under chapter 15, the section of U.S. bankruptcy law dealing with international insolvencies

Platinum Partners’ flagship hedge fund on Monday secured a legal shield that puts on-hold litigation accusing the troubled fund of looting Texas oil and gas company Black Elk Energy Offshore LLC.

U.S. Bankruptcy Judge Shelley Chapman said during a court hearing in Manhattan that she will grant the Platinum fund and a separate feeder fund recognition under chapter 15, the section of U.S. bankruptcy law dealing with international insolvencies. Her decision gives breathing space to the funds’ Cayman Island liquidators.

The funds were placed in liquidation in the Cayman Islands over the summer with “a large amount of investor redemptions remaining unpaid past their due date,” according to filings by the liquidators made with the U.S. Bankruptcy Court in New York.

Platinum’s liquidators say they are currently investigating allegations that the firm overvalued some of its assets. The hedge fund is also under federal investigation in New York. Platinum has said it is cooperating with the investigation.

Judge Chapman’s ruling puts the brakes on a $200 million lawsuit brought by a trustee overseeing what’s left of Black Elk, a company that fell into bankruptcy in 2015 under creditor pressure.

Black Elk trustee Richard Schmidt has accused Platinum insiders of plundering the oil and gas business by selling Black Elk’s prime assets to benefit the hedge fund.

Mr. Schmidt, a retired bankruptcy judge, said chapter 15 recognition only halts the lawsuit against the Cayman fund, Platinum Partners Value Arbitrage Fund LP, named in the lawsuit. The stay doesn’t apply to other entities named in the trustee’s lawsuit or a state lawsuit brought against former Black Elk directors and officers, Mr. Schmidt said.

“We will continue to pursue our action in whatever court it is appropriate to do it,” Mr. Schmidt told The Wall Street Journal.

Last month, the Texas judge overseeing the Black Elk bankruptcy issued a temporary restraining order freezing $118 million belonging to Platinum Partners. Craig Smyser, a lawyer representing Mr. Schmidt, said Monday that the order remains in place and that lawyers representing the trustee have been working with the Cayman Island liquidators.

“We’re on the same page with them as it relates to the lawsuits,” Mr. Smyser said.

Mr. Schmidt is trying to claw back money for creditors of Black Elk, which filed for chapter 11 in 2015. In bankruptcy proceedings, a trustee can sue to claw back certain payments to businesses and company insiders if the company was insolvent at the time it made the payments.

Such lawsuits are often unsecured creditors’ best shot at seeing a recovery on their losses. Black Elk collapsed after getting hit with criminal charges in connection with an off-coast explosion that left three workers dead. Black Elk pleaded not guilty to the criminal charges and litigation is ongoing.

IMAGE: Murray Huberfeld, co-founder of Platinum Partners, exits the Manhattan federal court house in New York City on June 8. The funds were placed in liquidation in the Cayman Islands over the summer. PHOTO: REUTERS

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