The Securities and Exchange Commission last week froze the US-based assets of an asset manager and two of his companies for fraudulently proclaiming to investors a track record of “exceptional risk-adjusted returns,” when in fact “particularly heavy losses” were incurred in 2008.  

According to the SEC, Nikolai Battoo claims to manage $1.5 billion on behalf of investors globally, $100 million of which is on behalf of US-based investors. The losses he suffered in 2008 were due to his investments in the Bernard Madoff Ponzi scheme - in which several Battoo-managed hedge funds were heavily invested - and a failed derivative investment program.

Battoo allegedly continued to attract new investors by boasting benchmark-beating returns. However, during the past several months investors have asked for redemptions on their investments, but were given a “series of excuses” instead of receiving payment. Such excuses ranged from the MF Global collapse to others placing a hold on investors’ money due to government investigations.

According to the SEC’s complaint - filed in US District Court for the Northern District of Illinois - Battoo’s financial empire is an "amorphous syndicate of funds, entities and affiliates." The two firms belonging to Battoo whose assets have been frozen are Panama-based BC Capital Group and BC Capital Group Limited in Hong Kong. 

The SEC has also charged Tracy 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. Sunderlage received commissions from the sale of investments as well as management fees for acting as the designated investment advisor to numerous client trusts that invested with Battoo.

“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 enforcement division.

Battoo created "individualized" portfolios for clients, which he managed under the brand name Private International Wealth Management. These portfolios consisted of holdings in several hedge funds he managed and holdings in other hedge funds, among other investments.

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. However, the asset verifications contained “false and backdated information," identifying 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; his asset verifications falsely stated the investments to be worth some $33 million.