Fraud! SEC Says
CHICAGO (CN) - A Bahamas-based investment manager helped a securities fraudster swipe $45 million from his customers and took $5 million in kickbacks for it, the SEC claims in Federal Court.
The SEC sued Julian R. Brown and Alliance Investment Management Ltd. on Friday. Brown is the president of Alliance.
Brown and Alliance falsely claimed to be "custodians" of assets under the management of Nikolai Battoo, the SEC said. The SEC sued Battoo in 2012 with defrauding investors across the world by claiming their investments were doing well during the financial crisis, though they actually were losing millions of dollars.
"Brown and AIM permitted Battoo to misappropriate at least $45 million of investor funds by transferring money at Battoo's behest from investor accounts to Battoo's direct control," the SEC in a statement accompanying it lawsuit. "Battoo used investor funds to pay AIM and Brown more than $5 million in return for their critical assistance."
According to the SEC lawsuit: "From at least 2008 until September 2012, Battoo concealed approximately $150 million of trading losses from investors by reporting false returns and asset values and misappropriated at least $45 million of investor funds to support his flamboyant lifestyle. Battoo's scheme, however, would not have gotten off the ground without the substantial assistance provided by defendants Alliance Investment Management Limited ('AIM') and Julian R. Brown, AIM's president.
"From 2004 through September 2012, Battoo pitched himself as a successful asset manager with a track record of exceptional risk adjusted returns - one unblemished by the financial crisis of 2008. The truth, however, was that Battoo's investments lost approximately $150 million in 2008. Rather than come clean to his investors about the crushing losses, Battoo embarked on a years-long campaign of lies and deceit to conceal them and to protect his reputation as a world class money manager. Battoo's fraud continued unabated until September 2012, when the SEC and CFTC filed emergency enforcement actions in this Court to put a halt to the scheme.
"Defendants Brown and AIM played a critical role in the success of Battoo's fraud. AIM, a foreign securities broker-dealer, pretended to be an independent custodian safeguarding the securities and other assets invested in Battoo's investment program.
"In reality, AIM were neither independent from Battoo nor custodians for investors. Brown and AIM enjoyed a cozy and profitable relationship with Battoo, which was anything but arms-length. They at times shared office space, a P.O. Box, telephone and fax numbers, and a common employee. Battoo even infused AIM with $5 million of investor money to help keep AIM solvent.
"Moreover, contrary to Brown's and AIM's representations to investors and their agents, AIM was never a true custodian for Battoo's investors. Since at least 2009, AIM did not have custody of most of the securities and other assets listed on the account statements sent to Battoo's investors. When AIM received investment money from investors, Brown handed over most of it to Battoo, who used it freely to support his lavish lifestyle - and to reward AIM."
The account statements that Brown and AIM sent to investors were "a figment of Battoo's criminal imagination," the SEC says in the complaint. "They wildly overstated the value of assets in investor accounts, including by listing investments that were never owned by the investors. As of the end of 2009, AIM issued account statements that overstated investor assets by at least $148 million."
The SEC seeks disgorgement and repatriation of assets, fines and an injunction."