The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The mastermind behind a $340 million Ponzi fraud allegedly “caused” a BISX-listed firm’s broker/dealer affiliate to issue “fabricated financial information” that resulted in the value of investors’ holdings being overvalued by almost $149 million.

Robb Evans, the US firm acting as the court-appointed receiver for Nikolai Battoo’s BC Capital Group scheme, alleged in a court filing earlier this week that Alliance Investment Management, the Benchmark (Bahamas) subsidiary, provided incorrect financial information to both auditors and investors.

The December 9, 2013, filing alleged: “Battoo caused Alliance to issue fabricated portfolio statements as of December 31, 2009 to six..... investors, in which asset values were overstated by a total of approximately $62.2 million.

“Battoo also caused Alliance to provide fabricated financial data to an independent accounting firm in Switzerland. Based on the fabricated data, the independent accounting firm issued independent financial and asset verification reports at December 31, 2009, to 20..... investors that overstated asset values by approximately $86.7 million.

“As a result, asset values at December 31, 2009, as reported to 26 .... investors were overstated, intentionally by Battoo and at his direction, by approximately $148.9 million.”

Robb Evans also alleged that Battoo “caused” Alliance, which was supposed to be acting as the custodian of more than $217 million in investor monies invested through it, to “provide false financial data” to the external auditors of one of his investment funds.

This resulted in the fund’s September 2009 audited financial statements recording a $7.7 million “overstatement” of asset values.

The US receiver, in its latest December 4 report on BC Capital Group to the US courts, said it had obtained e-mails between Battoo’s subordinates and Avril Elcock-Major, Alliance’s vice-president, where the former were requesting that the Bahamian broker/dealer send it copies of its letterhead.

One e-mail referring to the letterhead stated “stuff runs like water....... send some more along when you can”.

As a result, Robb Evans alleged: “It is clear that Battoo controlled the preparation of ‘Alliance’s’ portfolio statements, which reported the overstated asset values to portfolio participants.”

The US receiver’s report also referred to a September 22, 2010, e-mail from Battoo to Alliance and Benchmark’s president, Julian Brown, on “what information Alliance was to provide” to the Swiss-based, Lugano arm of PKF for an audit.

Another Battoo e-mail to Alliance, sent on October 12, 2010, contained two attachments, one of which contained a cash reconciliation report (CRR) that was different from the one that the broker/dealer provided to Robb Evans and its co-Bahamian liquidators.

“It is clear from this e-mail and the attachments thereto that Battoo was directing Alliance to provide his accounting firm false information that was prepared to Battoo,” Robb Evans alleged.

It added that many values and unit quantities supplied by Battoo to Alliance were “non-existent”.

The Bahamian broker/dealer, the main subsidiary of BISX-listed Benchmark, is already under investigation by the Securities Commission of the Bahamas over its role in the BC Capital affair.

And the liquidators, who include Bahamian PricewaterhouseCoopers (PwC) duo, Kevin Seymour and Kevin Cambridge, are also focusing on BC Capital’s collective $5 million investment in Benchmark/Alliance’s preference share capital.

The two investments, $2 million and $3 million, respectively, were critical to keeping Benchmark in positive net worth territory at the time. The liquidators, though, have described Alliance as “illiquid”, and suggested the prospect of recovering the $5 million investment is not good.

Robb Evans. meanwhile, warned that BC Capital investors who placed their money with Alliance faced being disadvantaged in its competition for assets with rival British Virgin Islands liquidators.

While most of the $340 million was placed via Alliance, which put the money into 71 different portfolios at its omnibus Royal Bank of Canada and FirstCaribbean International Bank (Bahamas), some $122.9 million destined for Battoo’s investment funds was sent directly to EFG Bank in the British Virgin Islands (BVI).

Noting that investor funds were “commingled” at Alliance, Robb Evans said these monies were further commingled with those received by EFG in Battoo’s funds.

Yet the BVI liquidators have announced they will only recognise those investors who placed money directly with EFG, “and to disregard the investments that came through Alliance”, ignoring the commingling.

“A distribution based upon their narrow view of the worldwide Ponzi scheme will favour a small portion of those victims who were defrauded, while leaving hundreds of investors with little or nothing in the way of recovery,” Robb Evans argued, seeking a US court order that all BVI-domiciled funds be turned over to it.

“Favouring certain injured investors who were directed to transfer funds directly into the funds over those who were directed to transfer funds into Alliance would be unjust and inequitable.”

As previously reported by Tribune Business, of the $217.1 million investor funds received by Alliance, just $83 million - some 38.2 per cent - was invested in a series of eight British Virgin Islands (BVI) domiciled hedge funds controlled by Battoo.

“Battoo misappropriated approximately $45.7 million (21.1 per cent) for his personal use and paid approximately $18.3 million (8.4 per cent) to parties related to him,” the liquidator had alleged.

“For every $100 received from the investors, just $38.23 was invested in Battoo-operated/controlled funds, $21.05 was paid to or for Battoo, $8.43 was paid to parties related to Battoo, and $7.37 was spent for other purposes.”