SEC Sues NIR’s Ribotsky for Stealing $1 Million From Clients

The U.S. Securities and Exchange Commission sued investment firm NIR Group LLC and its principal for allegedly hiding poor performance from investors and siphoning more than $1 million for personal use.

Corey Ribotsky, the sole managing member of Long Island-based NIR, wrote checks to himself from the firm’s $876 million AJW family of hedge funds from 2004 to 2009, even after his head accountant told him he was violating the law, the SEC said today in a complaint filed in federal court in New York. NIR and Ribotsky will fight the SEC’s claims, according to a statement from Brad Gerstman, Ribotsky’s lawyer.

NIR’s strategy of buying stakes in distressed and start-up firms through private investment in public equity, or PIPE transactions, began to show signs of failure in 2007 when many of the companies that got financing from AJW funds were essentially defunct or near bankruptcy, the SEC said in its lawsuit. The agency also sued Daryl Dworkin, a former NIR analyst accused of falsifying client reports under Ribotsky’s direction who pleaded guilty to related criminal charges in July 2010.

“In a classic betrayal of trust, Ribotsky stole from his investors and falsely assured them that his struggling hedge funds were thriving,” SEC Enforcement Director Robert Khuzami said in the agency’s statement.

Ribotsky also “repeatedly lied” to investors from 2007 to 2009 about the AJW Funds’ performance and liquidity, telling them NIR could liquidate investments in 36 to 48 months, “a practical impossibility” given the size of the investments and adverse market conditions, the SEC said in the statement.

He used client funds to pay for luxury items including Lexus and Mercedes automobiles and a Rolex watch, the SEC said.

“I think the complaint appears to be a stretch in an attempt to justify approximately two years of time and resources poured into the investigation,” Gerstman said.