June 29, 2022

Cayman Islands liquidation firm appointed in alleged hedge fund fraud

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Fraud.gifBy Georgina Wilcox

Due to a lack of insolvency expertise in Anguilla the Cayman Islands firm of Chris Johnson Associates Ltd were asked to accept the position as court appointed liquidators of Maven Assurance Ltd that had over $80m sent to Alliance for investment.

Chris Johnson Associates allege Alliance, a regulated company in Nassau, were grossly negligent in the manner they handled client funds. They found it was “amazing” that Alliance remained licensed by the Bahamian authorities in spite of the alleged Ponzi scheme being known to them for about three years. Investors in Maven have lost about $100M, which the liquidators are trying to recover through suing negligent advisors to Maven including three audit firms and various investment advisors.

Chris Johnson told iNews Cayman, “It is amazing that the three audit firms that were used by the Maven companies did not pick up this fraud where Maven lost almost $100 million allegedly invested by Battoo. As liquidators of the Maven companies we are looking into the matter and have commenced litigation against the audit firm of Johnson Lambert in the United States. Other suits against audit firms are likely to follow. The liquidators, appointed by the court in Anguilla, are also investigating the conduct of the broker dealer in Nassau, Alliance Investment Management and various third parties. In our opinion there were more Red flags here than are to be found at the Plaza de Toros de Las Ventas in Madrid.”

See below:

SEC files charges against Bahamas hedge fund manager

The Securities and Exchange Commission has charged (Aug 8) a Bahamas-based brokerage firm and its president for enabling a fraud that was halted when the SEC charged the hedge fund manager at the center of the scheme.

The SEC alleges that Julian R. Brown and his firm Alliance Investment Management Limited (AIM) purported to be the “custodian” for assets under the management of Nikolai Battoo. The SEC obtained a court-ordered freeze over Battoo’s assets after charging him in 2012 with defrauding investors around the world by hiding major losses while falsely boasting that their investments were performing remarkably during the financial crisis.

According to the SEC’s complaint filed today against Brown and AIM in federal court in Chicago, they misrepresented themselves to investors as Battoo’s custodian when, since at least 2009, their firm did not have custody of most of the assets listed on investor account statements. Brown and AIM allowed Battoo to create false account statements on AIM letterhead that vastly overstated the value of investors’ assets by more than $150 million. Brown and AIM then routinely provided the false account statements to auditors and others acting on behalf of Battoo’s investors.

The SEC further alleges that Brown and AIM permitted Battoo to misappropriate at least $45 million of investor funds by transferring money at Battoo’s behest from investor accounts to Battoo’s direct control. Battoo used investor funds to pay AIM and Brown more than $5 million in return for their critical assistance.

The SEC’s complaint alleges that Brown and AIM violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and aided and abetted Battoo’s violations of the antifraud provisions of the federal securities laws.

The SEC’s investigation, which is continuing, has been conducted by John D. Mitchell in the Chicago office, and assisted by Carlos CostaRodrigues, Marianne Olson, and Alberto Arevalo in the agency’s Office of International Affairs. The litigation will be led by Daniel J. Hayes. The SEC appreciates the assistance of the Securities Commission of the Bahamas, British Virgin Islands Financial Services Commission, and Guernsey Financial Services Commission.


Litigation Release No. 23063 / August 8, 2014

Securities and Exchange Commission v. Julian R. Brown and Alliance Investment Management Limited, Civil Action No. 14-CV-6130 (N.D. Ill., filed August 8, 2014)

SEC Charges Bahamas-Based Brokerage Firm and President with Facilitating Fraudulent Scheme by Hedge Fund Manager

Details of the complaint can be downloaded at: http://www.sec.gov/litigation/complaints/2014/comp-pr2014-163.pdf


See also related story:

Battoo/PIWM fraud provides a teachable moment for investors

From Law Firms.com

Last week, the SEC filed charges against Nikolai Battoo, a hedge fund manager who claimed to manage $1.5 billion on behalf of investors around the world, including at least $100 million in the United States. Battoo had credited himself with producing an impressive performance throughout the 2008 global financial crisis, but he apparently inflated the value of the assets he managed and at the same time concealed major losses from his investors. The SEC obtained an order freezing the assets of Battoo and two of his companies, BC Capital Group S.A. and BC Capital Group Limited, to prevent further harm to investors in the U.S.

In the same complaint, the SEC also charged Tracy Lee Sunderlage for his involvement with Battoo’s investment program. Since 2005, in violation of an industry bar order for a prior fraud, Sunderlage acted as an unregistered broker-dealer and investment advisor overseeing a complex investment program through his companies, Maven Assurance, Ltd. and Maven Life International. Sunderlage received substantial fees and commissions for selling variable annuities and other securities to Maven clients, many of whom purchased such products through self-directed IRAs using U.S.-based IRA custodians. According to the SEC, 80% to 95% of the amount paid by the Maven investors was ultimately invested in Battoo’s PIWM portfolios. A key selling point for Maven products was the supposedly high return from Battoo’s PIWM portfolios. By 2008, Battoo was managing about $70 million associated with Maven products and that amount has since grown to about $95 million.

This story gives us another chance to remind you of the most important rule for avoiding investment fraud. It’s similar to the old aphorism, “If it sounds too good to be true, it probably is.” But we hate clichés, and that one has the double whammy of being grammatically ambiguous, so try this. Claims of extraordinary investment returns should be met with extraordinary skepticism.

This Battoo guy is a perfect example. The SEC’s complaint alleges that Battoo pitched himself as a highly successful alternative asset manager with a track record unblemished by the global financial crisis of 2008. Battoo hyped his purported success to existing and prospective investors at a “due diligence conference” that he and Sunderlage sponsored at the Four Seasons Hotel in Las Vegas in January 2009. Promotional material for that conference asked boastfully, “How is it that PIWM-I can produce positive results or significantly reduce market losses when nearly everyone else is losing 35 to 50%?” Now we know the answer. It couldn’t and it didn’t.

The SEC, which has described Battoo’s financial empire as an amorphous syndicate of funds, entities, and affiliates, indicated that Battoo manages significant assets for companies that sell investment products to U.S. investors, and has investment proceeds channeled to him by a network of U.S.-based investment advisers. Battoo also allegedly has created individualized client portfolios that he manages under the PIWM brand name. These portfolios consist of holdings in several hedge funds he manages, holdings in other hedge funds, and other investments.

During the past several months, investors had been requesting redemptions on their investments with Battoo. But instead of paying them, Battoo provided excuses ranging from blaming the MF Global collapse to claiming that holds had been placed on investors’ money due to government investigations. The SEC says he was lying. Here’s an excerpt from the Commission’s press release summarizing the complaint:

“Battoo arranged for “asset verifications” in 2009 to reassure clients that their money was safe and secure following the market collapse. The asset verifications, however, contained false and backdated information. For example, they identify investments in at least seven hedge funds that Battoo did not manage. Battoo’s actual investments in these hedge funds amounted to about $9 million while his asset verifications falsely stated the investments to be worth approximately $33 million. Moreover, these asset verifications improperly included backdated investments that also inflated the value of the PIWM portfolios.”

The press release continues:

“…[W]hile Battoo claimed success, he actually sustained particularly heavy losses in 2008. First, he was terminated as an investment adviser to the master fund of a large international bank, which terminated him from a “fund linked certificate” program through which Battoo-managed hedge funds collectively invested about $138 million. After Battoo’s termination, the net asset value of the hedge fund managed for the bank plummeted by nearly 50 percent, and Battoo’s losses on the fund-linked certificates exceeded $100 million. The other major loss suffered by Battoo’s asset management business later that year flowed from Bernie Madoff’s Ponzi scheme, in which several Battoo-managed hedge funds were heavily invested. However, following Madoff’s arrest, Battoo assured his investors that the Madoff fraud had only a nominal or minimal impact on the portfolios. However, several Battoo-managed portfolios held substantial investments in hedge funds that fed into the Madoff scheme. In fact, Battoo had borrowed money to amplify the size of his Madoff investments. Battoo similarly concealed from investors the losses stemming from the fund-linked certificates. Without knowledge of these substantial losses, investors have collectively invested tens of millions of dollars with Battoo since 2009.”

For more on this story go to: http://www.lawfirms.com/news/securities/battoopiwm-fraud-provides-teachable-moment-investors.htm

IMAGE: hedgefundoperationalduediligence.com

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  1. John Galarde says

    I’d say Nikolai Battoo is a dead man.

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