The fall of Black Elk

The fall of Black Elk Energy began in New York City nearly a decade ago, with a meeting, a handshake and a loan.

Looking back, those were halcyon days for John Hoffman, founder of the Houston oil and gas company – before an explosion tore through an offshore rig and killed three workers, before federal investigators accused the hedge fund that made the loan of bilking investors, and before one of his top executives turned on him.

Hoffman, forced out of Black Elk in 2014, is now at the helm of a new company, and barely keeping the doors open. Black Elk is bankrupt and facing criminal charges in a federal case awaiting trial. And Hoffman’s one-time backer, Platinum Partners, is under federal indictment, accused of pillaging Black Elk and the hedge fund’s investors.

Last month, federal investigators arrested six Platinum executives and the man who replaced Hoffman as CEO, alleging they overvalued Black Elk’s assets, concealed “severe cash flow problems,” extracted high management fees and illegally diverted to Platinum more than $95 million owed to creditors holding Black Elk’s bonds. Platinum attorneys did not return calls seeking comment.

“I didn’t think (Platinum) had the guts to take it all,” Hoffman said in an interview. “I thought they’d take a large share. Ends up they took it all.”

The rise and fall of Black Elk Energy highlights the risks of the oil and gas business, which demands piles of cash that can quickly vanish through bad luck, bad planning, bad management or all three. It also reveals a shadow banking system that lends at double-digit interest rates to firms desperate for capital and has few qualms about gutting companies when they don’t perform.

Read the full story at HoustonChronicle.com

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