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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The SEC alleges that Sunderlage – who was charged and banned from the industry by the SEC for participating in an offering fraud in 1986 (SEC v. Sunderlage, et al., 86 C 6101 (N.D. Ill.)) – received commissions from the sale of investments and also received management fees for acting as the designated investment adviser to numerous client trusts that invested with Battoo. Sunderlage thus acted as an unregistered broker-dealer and investment adviser in violation of his industry bar.

SEC Charges Asset Manager Lied to Investors, Hid Major Losses While Boasting Remarkable Performance During Financial Crisis FOR IMMEDIATE RELEASE 2012-185 Washington, D.C., Sept. 7, 2012 – The Securities and Exchange Commission today announced an emergency enforcement action against an asset manager who has boasted remarkable investment success throughout the global financial crisis while allegedly exaggerating the value of the assets he manages and concealing major losses from investors. The SEC alleges that Nikolai Battoo claims to manage $1.5 billion on behalf of investors around the world, including at least $100 million for U.S.-based investors. But contrary to Battoo’s proclaimed track record of exceptional risk-adjusted returns for his investors, he actually suffered major losses in 2008 due to his investments in the Bernard Madoff Ponzi scheme and a failed derivative investment program. Rather than admit the losses to investors, Battoo has been overstating the value of his investments in a variety of ways. By boasting benchmark-beating returns, he has continued to attract new investors. However, during the past several months, investors have requested redemptions on their investments with Battoo. Instead of paying them, Battoo has provided a series of excuses ranging from the MF Global collapse to others placing a hold on investors’ money due to government investigations. Additional Materials SEC Complaint In U.S. District Court for the Northern District of Illinois this week, the SEC sought and obtained a freeze of U.S.-based assets belonging to Battoo and two of his companies – BC Capital Group S.A. based in Panama and BC Capital Group Limited based in Hong Kong – in order to prevent additional harm to U.S. investors. In addition to Battoo and his companies, the SEC has charged Tracy Lee Sunderlage – an unregistered broker-dealer who was banned from the industry in a previous SEC enforcement action – for his involvement with Battoo’s investment program. “Battoo attracted quite 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, Director of the SEC’s Division of Enforcement. “Now, Battoo is offering investors one excuse after another for holding their money hostage.” According to the SEC's complaint, Battoo's financial empire is an amorphous syndicate of funds, entities, and affiliates. Battoo manages significant assets for companies that sell investment products to U.S. investors, and has investment proceeds channeled to him by a network of U.S.-based investment advisers. Battoo has created for clients individualized "portfolios" that he manages under a brand name Private International Wealth Management (PIWM). These portfolios consist of holdings in several hedge funds he manages, holdings in other hedge funds, and other investments. The SEC’s complaint alleges that Battoo pitches himself as a highly successful alternative asset manager with a track record unblemished by the global financial crisis of 2008. Battoo hyped his purported success at a “due diligence conference” that he and Sunderlage sponsored for existing and prospective investors at the Four Seasons Hotel in Las Vegas in January 2009. A promotional material for that conference boasted, “How is it that PIWM-I can produce positive results or significantly reduce market losses when nearly everyone else is losing 35 to 50%?” According to the SEC’s complaint, Battoo arranged for “asset verifications” in 2009 to reassure clients that their money was safe and secure following the market collapse. The asset verifications, however, contained false and backdated information. For example, they identify investments in at least seven hedge funds that Battoo did not manage. Battoo’s actual investments in these hedge funds amounted to about $9 million while his asset verifications falsely stated the investments to be worth approximately $33 million. Moreover, these asset verifications improperly included backdated investments that also inflated the value of the PIWM portfolios. The SEC’s complaint alleges that while Battoo claimed success, he actually sustained particularly heavy losses in 2008. First, he was terminated as an investment adviser to the master fund of a large international bank, which terminated him from a “fund linked certificate” program through which Battoo-managed hedge funds collectively invested about $138 million. After Battoo’s termination, the net asset value of the hedge fund managed for the bank plummeted by nearly 50 percent, and Battoo’s losses on the fund-linked certificates exceeded $100 million. The other major loss suffered by Battoo’s asset management business later that year flowed from Bernie Madoff’s Ponzi scheme, in which several Battoo-managed hedge funds were heavily invested. However, following Madoff’s arrest, Battoo assured his investors that the Madoff fraud had only a nominal or minimal impact on the portfolios. However, several Battoo-managed portfolios held substantial investments in hedge funds that fed into the Madoff scheme. In fact, Battoo had borrowed money to amplify the size of his Madoff investments. Battoo similarly concealed from investors the losses stemming from the fund linked certificates. Without knowledge of these substantial losses, investors have collectively invested tens of millions of dollars with Battoo since 2009. According to the SEC’s complaint, once investors increasingly began seeking redemptions late last year, Battoo offered several false explanations for not paying them. Originally, Battoo claimed that the significant exposure of some of his investment portfolios to the MF Global liquidation prevented him from redeeming investments. However, Battoo’s actual exposure to MF Global is only a small fraction of what he has claimed. More recently, Battoo has said that certain counter parties had frozen the assets he manages based on investigations by U.S. government agencies, and that his attorneys were negotiating a “release” with the SEC. Prior to filing this complaint, Battoo’s assets were not frozen and he was not negotiating any release with the SEC. The SEC alleges that Sunderlage – who was charged and banned from the industry by the SEC for participating in an offering fraud in 1986 (SEC v. Sunderlage, et al., 86 C 6101 (N.D. Ill.)) – received commissions from the sale of investments and also received management fees for acting as the designated investment adviser to numerous client trusts that invested with Battoo. Sunderlage thus acted as an unregistered broker-dealer and investment adviser in violation of his industry bar. The SEC alleges that Battoo and his companies violated Section 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a)(1) of the Securities Exchange Act of 1934 and Rule 10b-5, and Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8. The SEC alleges that Sunderlage violated Section 15(a)(1) and 15(b)(6)(B)(i) of the Exchange Act and Section 203(f) of the Advisers Act. The SEC’s investigation, which is ongoing, has been conducted in the Chicago Regional Office by John D. Mitchell, Brian D. Fagel, Pesach Glaser and John T. Brodersen under the leadership of John J. Sikora, Jr. The SEC's litigation will be led by Jonathan S. Polish, Daniel J. Hayes, and Eric M. Phillips. The SEC acknowledges the cooperation and assistance of the U.S. Commodity Futures Trading Commission (CFTC), which has filed charges against Battoo in a parallel action. LANCEWALLACHEXPERTWITNESS.INFO

Federal Court in Illinois Shuts Down Nationwide “Employee Benefit Plan” Tax Scheme

Department of Justice

Office of Public Affairs

FOR IMMEDIATE RELEASE

Tuesday, March 6, 2012

A federal court has permanently barred Tracy L. Sunderlage, Linda Sunderlage and four companies from operating an alleged scheme to help high-income individuals attempt to avoid income taxes by funneling money through purported employee benefit plans, the Justice Department announced today. Judge John W. Darrah of the U.S. District Court for the Northern District of Illinois entered the permanent injunction orders, to which the defendants consented, against the Sunderlages, SRG International Ltd., of Nevis, West Indies, and three Illinois companies - SRG International U.S. LLC, Maven U.S. LLC and Randall Administration LLC.

                                   

According to the government complaint, the defendants claimed to promote and operate plans that provide insurance benefits to participating companies’ employees, when in fact the scheme is simply a mechanism for the companies’ owners to receive purportedly tax-free or tax-deferred income for their personal use. Tracy Sunderlage and the two SRG International companies allegedly marketed the scheme to high-income professionals who own small, closely held companies. In the most recent version of the alleged scheme, each participant’s company made supposedly tax deductible payments to a purported benefit plan operated by Maven U.S. and Randall Administration. The company’s contributions were then allegedly transferred to an account within a company based in the Caribbean island of Anguilla, in which they were allegedly invested until the owner terminated from the program and received the assets for his or her personal use. The complaint alleged that many participants owned these accounts through offshore trusts, which Tracy Sunderlage and SRG International Ltd. often helped to establish. The complaint alleged that participants from across the country have transferred at least $239 million as part of the scheme and that total contributions may exceed $300 million.

The injunction orders bar the defendants from operating or promoting any purported “welfare benefit plans.” The court also ordered the defendants to provide the government with a list of their customers and to send copies of the injunction orders to their customers.

In the past decade, the Justice Department’s Tax Division has obtained hundreds of injunctions against promoters of tax schemes and preparers of fraudulent tax returns. Information about these cases is available on the Justice Department website.

12-290

Tax Division

Lance Wallach's side has NEVER lost a case.

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