The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A US judge has imposed a $358 million fine on the perpetrators of an alleged multinational fraud that he found employed a BISX-listed firm’s subsidiary as its “alter ego”.

Judge Edmond Chang, sitting in the northern Illinois district court, ordered Nikolai Battoo and his BC Capital scheme to disgorge $272.6 million in alleged profits from a purported ‘Ponzi’ scheme that employed Alliance Investment Management, the broker/dealer affiliate of BISX-listed Benchmark Bahamas, at its hub.

While neither Alliance nor Benchmark, or their officers or directors, are liable to pay the penalties set by the US court, Judge Chang added in $17.53 million worth of pre-judgment interest plus a civil penalty of $68 million.

This took the total financial sanctions imposed on Battoo and BC Capital to just over $358 million, with Judge Chang adding: “This is an appropriate penalty because of the sheer enormity of the fraud, both in dollar figures and number of investors.

“There must be a substantial penalty to punish both the Battoo defendants, and to deter others from committing fraud on this scale.”

And, in a separate ruling last month, Judge Chang alluded to the central role that Alliance allegedly played in Battoo’s scheme, describing the Bahamian broker/dealer as his “alter ego”.

“Alliance is a Bahamian broker/dealer that shared telephone and facsimile numbers with defendants BC Panama and BC Hong Kong,” Judge Chang wrote.

“Defendant Battoo also sub-leased a section of office space from Alliance to use as BC Panama and BC Hong Kong’s offices.

“And Battoo controlled Alliance’s bank accounts. Thus, for the purposes of this Order, Alliance is treated as an alter ego of the defendants.”

Alliance, together with its (and Benchmark’s) president, Julian Brown, are currently facing a civil lawsuit brought by US capital markets regulator, the Securities & Exchange Commission (SEC), in relation to the BC Capital scheme.

The action, which is a separate case before the same northern Illinois court, has been slow to heat up.

Attorneys representing Alliance and Mr Brown have entered an appearance, indicating they will seek to defend the allegations against them, and have asked for more time to file defences and status reports because they are involved in other cases.

The SEC’s complaint alleges that Mr Brown and Alliance 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 Alliance allowed Battoo to create false account statements on Alliance letterhead that vastly overstated the value of investors’ assets by more than $150 million. Brown and Alliance then routinely provided the false account statements to auditors and others acting on behalf of Battoo’s investors,” said the SEC.

The regulator further alleged that Mr Brown and Alliance permitted Battoo to misappropriate at least $45 million in investor funds by transferring money on his orders from investor accounts to facilities under his direct control.

“Battoo used investor funds to pay Alliance and Brown more than $5 million in return for their critical assistance,” the SEC further claimed.

The liquidators for the Bahamian end of Battoo’s scheme wrote in their last report to the Supreme Court that they have been “severely hampered” by a lack of financing in their efforts to recover the $5 million investment, plus pursue legal action, against Alliance.

The PricewaterhouseCoopers (PwC) Bahamas duo warned, that BC Capital’s “illiquidity” had prevented them pursuing numerous legal remedies against Benchmark (Bahamas) broker/dealer subsidiary.

And Kevin Cambridge and Kevin Seymour warned, in their April 4 report, that their further investigations would “likely be halted” unless BC Capital investors provided them with funding for legal action.

“The joint official liquidators remain significantly challenged by the continued illiquidity of the company’s [BC Capital] estate,” Messrs Seymour and Cambridge warned.

“The joint official liquidators maintain their strong opinion that legal action in respect of a number of previously identified courses of action should be pursued against Alliance to compel Alliance to return the $5 million investment made in Alliance’s preference shares (which itself may not be a realisable asset); complete the registration of [BC Capital’s[ marketable securities and surrender the same to the joint official liquidators; and grant the joint official liquidators access to certain Battoo-controlled accounts where investor funds may have been diverted.”

The PwC duo added: “The joint official liquidators also maintain their opinion that claims for breach of fiduciary duty may be available against Alliance.

“Financing via the Liquidation Committee is required in order to allow the joint official liquidators to continue their investigations and pursue any courses of against Alliance.”

Tribune Business has previously revealed that most of the $340 million invested with BC Capital was placed via Alliance, which put the money into 71 different portfolios at its omnibus Royal Bank of Canada and FirstCaribbean International Bank (Bahamas) accounts.

Some $122.9 million destined for Battoo’s investment funds was sent directly to EFG Bank in the British Virgin Islands (BVI).

Of the $217.1 million placed with Alliance, previous court reports said: “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.

“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.”