According to a federal indictment, Platinum Partners founder Mark Nordlicht and four others faked the hedge fund's books for years to allow them to siphon off one billion dollars to their personal accounts, swindling 600 investors.

The prosecutors called it the biggest finance fraud since Bernie Madoff, and described the Platinum Partners' accounting as "Ponzi-esque."

Prior to the indictment, Platinum was considered to be one of the most successful funds in history, with an unbroken string of year-on-year rises, which many investors found suspicious. Platinum drew most of its investment capital from their social acquaintances in the orthodox Jewish community.

Prosecutors say the indicted bankers plotted to flee to Israel to escape US authorities.

Late last year, Platinum formally told investors it wouldn't be able to cash out all of their money, alarming some of them, said people close to the firm. Messrs. Nordlicht and Huberfeld went on an investor relations blitz, calling up some personally to profess their optimism about Platinum's financial health, the people said.

Mr. Nordlicht told some that he himself was lending money to Platinum personally, one of the people said.

Concurrently, the finances of Platinum's flagship fund was becoming dire, according to the SEC complaint.

In July 2015, the fund's master bank account was overdrawn by $1.5 million, according to the SEC complaint. A principal wired $1.65 million into Platinum's bank account. That money was then allegedly used to fund $50,000 in payments to two investors.

Platinum also used its second-largest fund to provide cash to the flagship, even though both entities prohibited borrowing from each other for anything other than investments, the SEC complaint said. Investors who put money into the second fund had their money diverted to pay off the flagship's short-term loans, without their knowledge or consent, the SEC said.

Near year-end, Messrs. Huberfeld and Nordlicht discussed fleeing the U.S. for Israel, according to the indictment.

"Don't forget books," Mr. Huberfeld wrote to his partner in an email, the indictment said. "Assume we are not coming back to ny...Take passport."