The reality, according to prosecutors, was that the hedge funds were near collapse. Reuters said that this practice eventually created a severe liquidity shortage at the firm. While at first they tried to address the matter through high-interest loans between its funds, it eventually opted to start selectively paying some investors ahead of others, a classic Ponzi scheme feature. Eventually Platinum announced that it was going to liquidate its hedge funds but would be unable to pay back investors' money before applying for bankruptcy protection. The liquidation of its two main funds in the Cayman Islands, according to the Journal, was a last-ditch effort to stave off a final reckoning.

The indictment said that the executives knew it was coming anyway, though, and considered fleeing to Israel. They instead elected to remain in the U.S. and continue extolling the virtues of their fund, which they kept insisting was perfectly fine.