The Tribune

By NATARIO McKENZIE

Tribune Business Reporter

nmckenzie@tribunemedia.net

THE United States Securities and Exchange Commission (SEC) has charged Bahamas-based brokerage firm Alliance Investment Management (AIM) and its president Julian Brown for facilitating a multi-million dollar international ‘Ponzi scheme’.

The SEC filed the complaint against Mr Brown and his brokerage firm in federal court in Chicago on Friday.

Alliance is the main broker/dealer subsidiary for BISX-listed Benchmark (Bahamas), which has 735 Bahamian investors. This latest development relative to Alliance and Mr Brown, whose links to this issue have been reported extensively by Tribune Business over the past two years, raises more questions as to whether Benchmark will be able to continue and whether Bahamian investors will lose on their investments.

The SEC alleges that Mr Brown and his firm purported to be the “custodian” for assets under the control of hedge fund manager Nikolai Battoo and his BC Capital Group. “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,” the regulator said in a statement.

According to the SEC’s complaint, Mr Brown and his firm 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 $150m. Brown and AIM then routinely provided the false account statements to auditors and others acting on behalf of Battoo’s investors,” said the SEC.

The regulator further alleges that Mr Brown and AIM permitted Battoo to misappropriate at least $45m of investor funds by transferring money on orders of Mr Battoo’s from investor accounts to Battoo’s direct control. “Battoo used investor funds to pay AIM and Brown more than $5m 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 anti-fraud provisions of the federal securities laws.

In May, Tribune Business reported how Benchmark Capital had upgraded its support for Alliance, its main broker/dealer subsidiary, to a guarantee that would ensure that it remains financially solvent until the end of April 2015, in a bid to assuage the Bahamas Securities Commission’s ongoing concerns.

Benchmark (Bahamas) financial statements for the year to the end of 2013 revealed that the directors had to strengthen the original ‘comfort letter’ given in favour of AIM, amid concerns over the adequacy of a subsidiary’s regulatory capital raised by the Securities Commission.