Nikolai S. Battoo, The Fund Manager Chased By Two Regulators

Two federal regulatory agencies are in hot pursuit of a shadowy hedge fund figure and various companies associated with him, claiming they pumped millions into Bernard Madoff feeder funds and other unsuccessful investments, and then lied about the losses.

On Sept. 7, both the Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission filed actions in the federal Northern District of Illinois against Nikolai S. Battoo, 41, who apparently has most recently operated in Florida.
In announcing its action, the SEC said Battoo has run numerous hedge funds and claims to manage $1.5 billion for investors worldwide, including at least $100 million in the United States.
Battoo has gathered “tens of millions of dollars” in investments since 2009, all the while losing millions more, the SEC also said in a detailed, 32-page complaint.
He has managed money through a series of companies including BC Capital Group, of Panama, and BC Capital Group Limited, which is believed to be run from Hong Kong. He also manages several hedge funds and is “senior advisor” for an outfit called Private International Wealth Management, and is thought to be affiliated with FuturesOne LLC, a commodities pool located in Lincoln, Neb.
Battoo has been trying to cover up his failures and overstate the value his investments “in a number of ways,” the SEC said. When soliciting investors, Battoo has claimed an outstanding track record and “exceptional risk-adjusted returns,” according to the SEC. The agency calls Battoo’s financial empire “an amorphous syndicate of far-flung funds, entities and affiliates.”
Battoo investors suffered serious losses in 2008. He was also terminated as investment adviser for a large international bank, which included $138 million worth of hedge funds Battoo had managed. After his firing, the value of the hedge funds plummeted by almost 50 percent, the SEC said.
“Battoo attracted quire a following of investors by proclaiming his investments withstood the test of the financial crisis, but reality seems to have finally caught up with him,” said Robert Khuzami, the SEC’s director of enforcement. “Now, Battoo is offering investors one excuse after another for holding their money hostage.”
Aside from putting tens of millions of dollars into Madoff feeder funds, Battoo also lost millions through a failed derivatives investment scheme, regulators said.
Battoo apparently is now blaming the wreckage of MF Global for his inability to repay investors: “The jig appears to be up,” the SEC court complaint said. “Clients are now clamoring for redemptions, so Battoo has doubled down on his deception.”

The SEC is also going after Tracy Lee Sunderlage, 65, a Battoo colleague who had already been banned from the securities industry after a previous enforcement action. Regulators charge that Sunderlage, who now lives in Florida, poured about $95 million in assets from variable annuities and self-directed Individual Retirement Accounts into Battoo investments.
The SEC is asking a federal court for findings of fact that Battoo and Sunderlage have violated federal laws, and for injunctions to put them out of business. The agency also wants disgorgement of ill-gotten gains and unspecified civil penalties.
In its separate complaint filed in the same court, the CFTC is seeking an order prompted by Battoo and four of his companies in connection with Private International Wealth Management, a series of commodities pools. The CFTC accuses Battoo and the companies of fraud, and is asking that a receiver be appointed and that assets of the companies be frozen.


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2 comments:

Lance Wallach said...

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Wednesday, July 3, 2013

IRS Attacks Business Owners in 419, 412, Section 79 and...
Massachusetts Society of Certified Public Accountants, Inc.
Winter 2010

IRS Attacks Business Owners in 419, 412, Section 79 and Captive Insurance Plans Under Section 6707A

By Lance Wallach

Taxpayers who previously adopted 419, 412i, captive insurance or Section 79 plans are in big trouble.

In recent years, the IRS has identified many of these arrangements as abusive devices to funnel tax deductible dollars to shareholders and classified these arrangements as listed transactions." These plans were sold by insurance agents, financial planners, accountants and attorneys seeking large life insurance commissions. In general, taxpayers who engage in a “listed transaction” must report such transaction to the IRS on Form 8886 every year that they “participate” in the transaction, and you do not necessarily have to make a contribution or claim a tax deduction to participate. Section 6707A of the Code imposes severe penalties for failure to file Form 8886 with respect to a listed transaction. But you are also in trouble if you file incorrectly. I have received numerous phone calls from business owners who filed and still got fined. Not only do you have to file Form 8886, but it also has to be prepared correctly. I only know of two people in the U.S. who have filed these forms properly for clients. They tell me that was after hundreds of hours of research and over 50 phones calls to various IRS personnel. The filing instructions for Form 8886 presume a timely filling. Most people file late and follow the directions for currently preparing the forms. Then the IRS fines the business owner. The tax court does not have jurisdiction to abate or lower such penalties imposed by the IRS.

"Many taxpayers who are no longer taking current tax deductions for these plans continue to enjoy the benefit of previous tax deductions by continuing the deferral of income from contributions and deductions taken in prior years."

Lance Wallach said...


The problem became especially bad a few years ago with all of the outlandish claims about how §§419A(f)(5) and 419A(f)(6) exempted employers from any tax deduction limits. Many other inaccurate statements were made as well, until the IRS finally put a stop to such assertions by issuing regulations and naming such plans as "potentially abusive tax shelters" (or "listed transactions") that needed to be disclosed and registered. This appeared to put an end to the scourge of such scurrilous promoters, as such plans began to disappear from the landscape.

And what happened to all the providers that were peddling §§419A(f)(5) and (6) life insurance plans a couple of years ago? We recently found the answer: most of them found a new life as promoters of so-called "419(e)" welfare benefit plans.


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