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Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Wednesday, September 28, 2011

SEC Charges Long Island-Based Hedge Fund Manager With Fraud Involving PIPE Transactions

The SEC charged a Long Island-based investment adviser with defrauding investors in hedge funds investing in PIPE transactions and misappropriating more than $1 million in client assets for his personal use.  The SEC alleges that Corey Ribotsky and his firm The NIR Group LLC repeatedly lied to investors to hide the truth that his PIPE investment and trading strategy was failing during the financial crisis. For example, Ribotsky falsely told investors that despite the adverse market conditions he could liquidate all of the PIPE investments in 36 to 48 months – a practical impossibility given the size of the investments. Meanwhile, Ribotsky misused investor money by writing checks to pay for personal services and such luxury items as a Lexus, Mercedes, and Rolex watch.

According to the SEC’s complaint , NIR’s family of AJW Funds provided cash financing to distressed, emerging growth, and start-up microcap companies quoted on the Over-the-Counter Bulletin Board or the Pink Sheets. The AJW Funds were typically invested in 120 to 130 different companies at any given time.  The SEC alleges that beginning in July 2004, Ribotsky began siphoning assets from one of the AJW Funds he was managing through NIR. NIR’s strategy of investing in distressed and start-up companies began to show signs of failure by mid-to-late 2007. Many of the distressed companies to which the AJW Funds had made loans were by then essentially defunct or on the verge of filing for bankruptcy. The SEC alleges that Ribotsky made false and misleading statements to investors while his hedge funds were struggling to create the illusion of success.

The SEC’s complaint seeks a final judgment permanently enjoining Ribotsky and NIR from future violations of the above provisions of the federal securities laws and ordering them to disgorge any ill-gotten gains plus prejudgment interest and pay monetary penalties.

http://lawprofessors.typepad.com/securities/2011/09/sec-charges-long-island-based-hedge-fund-manager-with-fraud-involving-pipe-transactions.html

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