SEC Files Another Action Centered On IA Nikolai Battoo

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Alternative investment manager Nikolai Battoo appeared to be the all-American success story. He began as a Florida cook and rose to manage over a billion dollars in assets. He attracted investments from investors across the globe. He claimed to have successfully navigated the financial crisis and Madoff. Unfortunately for his investors, at this juncture he only appears to attract law suits. Both the SEC and the CFTC have brought enforcement actions. See SEC v. Battoo, Civil Action No. 12 C 7125 (N.D. Ill.); CFTC v. Battoo, Civil Action No. 12 C 7127 (N.D. Ill.); see also In the Matter of Larry C. Grossman, Adm. Proc. File No. 3-15617 (Nov. 20, 2013).

The SEC added to the list, filing SEC v. Brown, Civil Action No. 1:14-cv-06130 (N.D. Ill. Filed August 8, 2014). That action names as defendants Alliance Investment Management Limited, or AIM, a Bahamian broker dealer registered with the SEC, and its president, Julian R. Brown. At its center is former cook and investment management star, Nikolai Battoo.

Mr. Battoo was a principal of BC Capital Group S.A. and BC Capital Group Limited. He also controlled and served as the investment adviser to several hedge fund families and for PIWM, a brand name under which he managed a number of portfolios. At his peak Mr. Battoo claimed to have about $1.5 billion under management.

From about 2004 through the fall of 2012 Mr. Battoo represented to investors that he was a highly successful asset manager. During the period he raised over $400 million from investors in several countries. He claimed to manage over $200 million for the benefit of U.S. investors.

Under the PIWM trade name Mr. Battoo managed a variety of programs called mandates, a type of pooled investment vehicle. The investment programs appeared to be successful. Even through the market crisis Mr. Battoo claimed that the PIWM program was successful.

Investors later learned it was not. The PIWM program suffered significant losses during the period. Beginning in 2005 Mr. Battoo participated in a fund-linked certificate program through an international bank, investing about $130 million. In 2008 the investment was wiped out. In December of that year his management business suffered another significant blow. Several of the hedge funds he managed were heavily invested in the Madoff Ponzi scheme. More heavy losses.

Rather than tell investors the truth, Mr. Battoo lied to them. While he recovered some of the losses from the fund-linked certificate program, investors were never told about the losses. He denied that the Madoff debacle had have any significant impact on his investment program. Investors were furnished with false account statements recording bogus investment returns.

Mr. Brown and AIM directly participated in, and substantially assisted, Mr. Battoo’s fraud. Throughout the period AIM represented that it was the independent custodian for PIWM investments. The custodian was supposed to safeguard the investments. In fact, after receiving investor proceeds AIM did not retain custody of them. Rather, at the direction of Mr. Battoo, the assets were forwarded to him. This facilitated in the misappropriation of over $45 million, according to the complaint.

AIM was supposed to send account statements to investors. Those statements would assure investors that the custodian was protecting them. Preparation of the statements was problematic since the assets had been returned to Mr. Battoo. To solve this problem Mr. Battoo was furnished with blank AIM letterhead so that he could create the account statements. The Battoo account statements, which vastly overstated the value of the accounts, were then distributed to investors by Mr. Brown under a letter bearing his signature.

Mr. Brown and AIM profited from their work with Mr. Battoo. About $5 million was placed with the firm as a so-called investment by Mr. Battoo. In addition, Mr. Brown and AIM were paid significant fees. The complaint alleges violations of each subsection of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is in litigation.

 

Topics:  Alternative Investment Funds, Compliance, Enforcement, Enforcement Actions, Fraud, Investment Management, SEC

Published In: Finance & Banking Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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