The SEC filed another case tied to the market crisis and Bernard Madoof last week. Despite claims that he successfully managed a complex, international web of entities and funds through the market crisis without losses, the Commission alleges that international investment manager Nicolai Battoo is concealing millions in losses from investors. SEC v. Battoo (N.D. Ill. Filed Setp. 6, 2012). The CFTC brought a parallel action against Mr. Battoo. CFTC v. Battoo, Case No. 1:12-cv-07127 (N.D. Ill. Filed Sept. 6, 2012).

Named as defendants along with Mr. Battoo are two companies of which he is a principle, BC Capital SA, a Panama company, and BC Capital Limited, a Hong Kong based entity. Also named in the complaint is Tracy Sunderlance, who was previously enjoined in a Commission enforcement action and barred from the business. Mr. Sunderlance has received commissions from the sale of investments and management fees for acting as a designated investment adviser to client trusts that invest with Mr. Battoo.

Mr. Battoo claims to be a successful asset manager with an exceptional track record. He manages several hedge fund families and is an advisor for Private International Wealth Management or PIWM which manages a number of portfolios. He is also a principal of FuturesOne LlC, a commodity pool operator. Overall, Mr. Battoo claims to have about $1.5 billion under management.

As others lost millions of dollars during the market crisis, Mr. Battoo told investors funds managed were financially sound and had not suffered losses. To reassure investors he arranged a “due diligence” conference in Las Vegas in January 2009. He also arranged for “asset verifications” at which investors were furnished false financial information.

Battoo’s claims are false and, according to the Commission, his operations have suffered significant losses:

  • In 2008 he was terminated as an investment adviser to the master fund of a large international bank and from a “fund linked certificate” program which gave him access to various investment fund and through which classes of funds he managed and invested $138 million. Following the termination the NAV for the fund he managed dropped by 50% and his losses on the fund linked certificates exceeded $100 million;
  • Several of his funds he managed were heavily invested in Maddoff’s Ponzi scheme; and
  • The losses from the fund linked certificate investments and the Madoff fraud flowed through to the PIWM portfolios in which U.S. investors have significant investments.

Some assets are overvalued, according to the Commission.

Despite Mr. Battoo’s assurances, investors have been seeking redemptions but have been met with a series of excuses which include:

  • Claims that the MF Global liquidation was delaying payments; and
  • Statements that counterparties had frozen assets he manages because of government investigations but that he is negotiating with the SEC for a release.

These claims are false. Investors still have not been able to redeem their interests.

The Commission’s complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The Commission won an asset freeze order from the Court last week. The case is in litigation.