The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A “total lack of evidence” produced by US federal regulators means their lawsuit against a BISX-listed company’s principal, and its broker/dealer affiliate, over an alleged $400 million fraud should be dismissed.

US attorneys for Julian Brown, Benchmark (Bahamas) president and chief executive, and Alliance Investment Management are effectively ‘sticking to their guns’ that the action against the Bahamian defendants be struck out on technical grounds.

They are arguing that the Securities and Exchange Commission (SEC), the US capital markets regulator, has again failed to prove that the northern Illinois district court has jurisdiction over Mr Brown and Alliance as foreign defendants.

Suggesting that the SEC’s new-found reliance on their alleged contact with the US, rather than Illinois, was “unavailing”, Mr Brown’s attorneys said it had been unable to refute their client’s affidavit.

“The SEC did not refute the certification of defendant Julian Brown, which establishes the total lack of requisite minimum contacts with Illinois and the United States as a whole,” Mr Brown and Alliance alleged in legal arguments filed in US federal court on Tuesday.

“There is no competent evidence to establish either general or specific personal jurisdiction over defendants. Accordingly, dismissal on jurisdictional grounds is warranted.”

The Bahamian duo also reiterated that the SEC’s action should be dismissed because it failed to state a claim under US law.

This, they argued, was because neither liability, nor title transfer for the securities involved in the BC Capital Group scheme, occurred in the US.

The crux of the SEC’s case is that Mr Brown and Alliance alleged helped to facilitate the international fraud perpetrated by BC Capital and its principal, Nikolai Battoo.

The regulator is claiming that the Bahamian defendants misled investors by suggesting they were the independent custodian for the BC Capital funds, whereas these monies were all directly in Battoo’s hands.

And it is also alleging that Alliance “helped him hide the massive losses by sending out bogus account statements that fraudulently overstated the value of investor assets by more than $148 million.

“AIM and Brown’s complicity, for which they were monetarily rewarded, enabled the fraud scheme to flourish in the shadows for years,” it was claimed.

The SEC, which alleged that BC Capital raised $400 million worldwide, including $200 million in the US, said financial statements sent to investors by Alliance “materially overstated the true value of the assets”.

It claimed: “The phony accounts statements were created by Battoo using Alliance letterhead.

“At the request of Battoo’s US-based sales agent, Alliance and Brown sent blank Alliance letterhead to Battoo in Fort Lauderdale, Florida where he constructed the fictitious account statements and sent them back to Alliance.

“Brown then willingly distributed the false account statements with cover letters bearing his signature.”

Mr Brown and Alliance have not directly denied, or refuted, any of the SEC’s allegations against them, and are instead seeking to have the action thrown out on legal technicalities.

The SEC’s decision for filing, and bringing, the action in northern Illinois is because this is where the auditors for one BC Capital client, Maven Assurance, received financial statements from Alliance detailing the scheme’s ‘performance’.

The SEC is arguing that this establishes the nexus linking the Bahamian defendants to that state. It is also alleging that these financial statements induced Maven’s investors to place a further $13 million with Battoo.

Mr Brown and Alliance, through their attorneys, are directly attacking this by claiming that this is not sufficient to give the US courts jurisdiction over them.

Arguing that the SEC had produced no further evidence to back its case, Mr Brown and Alliance alleged: “Defendants did not purposefully direct any activities in the state of Illinois.

“Alliance did not, and does not, have an office in Illinois or anywhere else in the United States, and Mr Brown did not - and does not - have a residence in Illinois or anywhere in the United States.

“Therefore, because they do not reside and are not found within the territorial boundaries of the United States, this court lacks personal jurisdiction over defendants.”

Mr Brown and Alliance also argued that they did not deliberately have contact with the northern Illinois district, saying they only sent the financial statements to Maven’s auditor at Battoo’s direction.

“Mr Battoo and BC Capital instructed Alliance to forward account statements to the auditors and, as alleged in the SEC’s complaint, at the request of Mr Battoo, Alliance mailed letterhead to Florida,” the Bahamian defendants alleged, reiterating that it was only Battoo’s request that took them into contact with Illinois.

In its last bid to demonstrate that the US courts have jurisdiction, the SEC produced a ‘screen grab’ from Alliance’s website where it promotes itself as offering clients a range of financial services products “throughout the United States, Canada and internationally”.

And the US capital markets regulators argued that Alliance had been quite happy “to invoke the jurisdiction of US courts in the past”, noting that the Bahamian broker/dealer had been embroiled in 2004 litigation in the south Florida district court against Akers Bioscience.

Rebutting both, Mr Brown and Alliance said the website was “irrelevant” to the current case and did not give the US courts jurisdiction. They argued the same of the lawsuit from a decade ago.

As for the SEC’s failure to state a claim, Mr Brown and Alliance said ‘the action’ effectively took place outside the US, as this was where Maven’s investors signed the original paperwork for their subscriptions.