Ponzi Victims Must Wait on Refunds, Court Says

CHICAGO (CN) - Liquidators in the British Virgin Islands cannot lift an injunction to begin disbursing what's left of a $340 million Ponzi scheme, the Seventh Circuit ruled.

The Tuesday decision comes in the wake of a 2012 Commodities Futures Commission complaint that accused Nikolai Simon Battoo and BC Capital Group entitiesof taking $340 million in a Ponzi scheme disguised as offshore commodity pools for private international wealth management.

A federal judge appointed a receiver and froze all Battoo's assets pending a final decision about who owns the remaining assets.

But Battoo defied the injunction, and transferred control of some former investment vehicles in the British Virgin Islands to liquidators whose court appointments Battoo had arranged.

A federal judge conceded that the liquidators were technically under judicial control at the time and independent of Battoo but denied the request, ruling that all disbursements should wait for the receiver to making a final master plan.

The Seventh Circuit affirmed Tuesday, citing the complexity of Battoo's fraud.

"Who owns what, and how the frauds affected each investment's value, need to be worked out," Judge Frank Easterbrook wrote for the three-judge panel. "The liquidators are confident that they know the answers to those questions, at least for the British Virgin Islands funds, but they have not demonstrated that the district judge is obliged to share their optimism."

Battoo stole some of his 800 investors' money, invested the rest in a web of funds, all of which he controlled. He intentionally moved the money freely across funds to make tracing each investment difficult. Some of the funds suffered significant losses, but he hid these losses from current and potential investors.

Several of Battoo's investment vehicles were also heavily invested in Bernard Madoff's funds, causing further losses when that Ponzi scheme unraveled.

"Even without transfers among the funds, this sequence shows the potential difficulty in sorting out who owns what, because investments that preceded any given fraud would be affected differently from investments made later," Easterbrook said.

The panel agreed with the lower court's reasoning that it should wait for the receiver to make findings and recommendations rather than "fiddling" with the preliminary injunction.

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