Will PWC kick Corey Ribotsky out of NIR Group master fund?

N.I.R. Group investors scored a big win in the Cayman Island’s civil court this month. Corey Ribotsky will now have to answer to a court appointed independent liquidator for the Master fund who says the first order of business is an investigation into how Ribotsky has been managing cash flow and investment valuations since the fund was restructured in late 2008. The news was first reported Tuesday for DealFlow Media.

On June 1st, PriceWaterhouseCoopers wrestled control of the AJW Master Fund II liquidation from KPMG. As I previously reported, KPMG was gung-ho on keeping Ribotsky as the manager of the fund during the liquidation. Offshore feeder fund investors didn’t like this, so by some miracle they got a Cayman Islands judge to rally a vote amoung all investors to remove KPMG for conflicts of interest with N.I.R. Group–and they won. PWC told The PIPES Report they’ll be working for investors’ interest and if they want Ribotsky out as manager then he’ll get the boot.

Investors in the onshore feeder fund tell me they haven’t received performance numbers from Ribotsky since January and very little transparency has been offered regarding the current net asset values. But with PWC on the case now it looks like the kimono will finally be opened and a long time accounting of the funds real asset value will be front and center.

Last week the FT reported the SEC is now investigating N.I.R. Group for their role as collateral manager in the toxic Norma CDO that was allegedly designed for hedge fund Magnetar to make millions shorting. I advanced the news this week reporting for The PIPES Report, the SEC is also looking at Ribotsky for buying credit default swaps against the CDO he was hired to pick collateral and manage. Talk about the ultimate insiders game.

You can buy a single copy of the report on what PWC plans to do with the NIR liquidation and more news on the SEC investigation here.

RBS Embezzler James Glover’s USA Bank loan Close to Default

The 20-year Greenwich Capital executive, James Glover, who pled guilty to an embezzlement scheme against Royal Bank of Scotland this month, is likely to see his ski resort real estate project blow up in smoke.

An over built luxury ski mansion is allegedly the driving factor that pushed Glover to steal from RBS when he couldn’t afford to pay his short term construction loan. The seven bedroom home, pimped out with over the top luxury amenities, is now up for sale in a private auction by Concierge. Glover’s partner Tom Poelker, a developer in the Windham area, has kicked Glover out of any management responsibilities. He’s now desperate to sell the home in a no minimum bid auction before the loan is due at the end of the month or the Pennsylvania bank who took over the distressed mortgage could go after their personal assets, which includes Glover’s primary resident in West Harrison, NY. The Glover loan was assumed by Customers Bank when the FDIC shut down the mortgage originator, USA Bank, last July.

News of Glover being suspended from RBS and turned over to authorities surfaced early last year when Greenwich Time and DealBreaker reported Glover felt cashed strapped from the lack of bonus the British subsidized bank was giving in 2009. I reported at Greenwich Time Glover had been vocal with his RBS peers about needing cash to make interest and balloon payments on a commercial loan issued by USA Bank. The $3.6 million loan was for development of a high-end residential development at a ski resort in Windham, New York. The 2008 construction and building improvement loan was issued in June 2008 at 9 percent interest only but Glover and his partner Tom Poelker were unable to get sales going and couldn’t make the June 2010 balloon payment, according to Poelker’s attorney Larry Gardner who handles his real estate transactions. USA bank loan documents show, the secured loan was backed by Glover’s personal ski house and the near 80 acres of prime land the development project had bought for around $1 million.

Poelker is a known developer in the tony upstate New York ski area and the chairman of the Democratic Committee for Greene County. Poelker says their goal was to zone the land into about 9 lots, build a road and sewer hook ups for spec homes selling for about $5 million each. Carol Shaw, a local realtor says most lux homes near the ski resort don’t go for over $2 million. But still, Poelker’s attorney admits, Glover and Poelker began building a 11,000 square spec house during the heart of the 2008 financial crisis with no buyer in site to promote the lux resort community idea. It’s been listed since last year for $5.9 million but had no takers. I reported for DealFlow Media last month that USA Bank is currently under a criminal investigation by the FDIC’s Office of Inspector General. My investigation detailed the bank’s failure due to reckless lending that lead to a depletion of their $35 million in equity capital in only four years. The FDIC seized the bank in July 2010 after they couldn’t raise their risk based equity capital above 7 percent and their lending profile was too highly concentrated in defaulting commercial and construction loans.

Glover’s plea deal with the U.S. Attorney states he stole around $625,000 from RBS by making up a client account, CPS Funding, that had a similar name to a real RBS vendor and client. Glover’s first cousin Bill Kardias’s has a New Jersey based information security business called CPS/Comtech and was a vendor for Greenwich Capital. Court documents say that Glover made nine separate transfers to the fake account set up in New Jersey in 2009 and 2010 and pocketed the money. An RBS internal audit caught the last transfer on Jan. 21, 2010 for $359,180.55 and RBS officials confronted him about the fraud. Glover reversed the transfer and returned the $300,000 immediately. The rest of the money he siphoned off from the bank was return in March 2010.
RBS has stated this was an act of only one person from the bank, but a spokesman for the Department of Justice says the investigation is ongoing.

Neither Glover or his cousin Kardias returned a call for comment.

Gene Riccio, Glover’s attorney, declined to comment except to say that, “It was an unfortunate situation.”

Glover’s sentencing is scheduled for mid-September.

After Glover was fired from RBS he listed his second home, a nine bedroom five bath ski chalet in Windham for $1.1 million. His realtor, Carol Shaw, confirmed it sold at a discount in June for $870,000. According to Poelker’s attorney Gardner, Glover and Poelker then used the proceeds from the sale to bring current the interest on the loan and USA Bank gave them a modification lowering the interest rate to 6 percent and extending the time of the balloon payment to June 30th 2011. Poelker had to add a personal guarantee to the modification. Poelker’s attorney Stewart Barrelson said after the news broke that Glover had been fired and was being investigated, Poelker had him removed as a managing and voting partner of the Llc, Stony Hill Road 1,that runs the resort project. Loan documents show Glover is still personally liable for the $3.6mn USA bank loan. With the new looming construction loan due and no successful sales to any of the nine lots or the $5.9 million spec home; Poelker was in a bind and recently put it up for auction. The auction for the 7 bedroom lux home with in-ground pool on 5 acres, takes place June 25th. Modified loan documents show the bank will release the spec house from the secured collateralized construction loan if they get $3 million. If Glover and Poelker default on the loan the bank can claim the entire project’s land of near 80 acres, plus Glover’s primary residence in West Harrison New York.

The Bank was seized July 9th 2010 and the loans were assumed by Pa.-based Customers Bank, which is run by former Sovereign bank executive Jay Sidhu. Glover’s only lucky break appears to be a loan modification given to his resort project on June 29th just two weeks before USA bank was seized. But my investigation into USA Bank shows Sidhu’s team isn’t so accommodating and has already tried to force other real estate developers in Greenwich and New Canaan into Chapter 7 bankruptcy because they appear to want the mega mansions that were secured by the defaulting USA Bank loans. USA Bank’s father-son chairmen, Fred DeCaro Jr. and Fed DeCaro III, have also been reported to be under criminal investigation for bank fraud.

For now we wait to see if a cash flush distressed debt buyer is able to scoop up the entire Windham resort project for only the $3.6 million principle Glover and Poelker are desperate to pay off.

SEC Wakes Up to NIR Group’s role in toxic Norma CDO

The new and improved Securities and Exchange Commission has finally decided to investigate the role of collateral managers who helped banks like Merrill Lynch sell CDOs designed to fail. Their first target is a Long Island hedge fund manager, Corey Ribotsky of N.I.R. Group. Kara Scannell of the Financial Times was first to report on the SEC’s new investigation into Ribotsky and the Merrill Lynch executives who hired him to co-sale a toxic $1.5 billion CDO called Norma.

The mortgage security in question, packed with derivatives of sumprime residential loans, plummeted into defaults within the first year of its 2007 issuance while funds like N.I.R Group kept reaping million dollar fees to manage it. But what the SEC appears to be most interested in is the notion that Ribotsky didn’t do any managing or independent selection of the collateral that went into creating the CDO. Instead he allegedly handed off that responsibility to a large Merrill client and hedge fund called Magnetar; who was building short positions betting against the success of the CDO. The sausage making of toxic CDO’s like Norma was first exposed in December 2007 by Carrick Mollenkamp and Serna Ng at the Wall Street Journal. Some how these intrepid reporters got Ribotsky on the record bragging about how Merrill’s Kenneth Margolis, co-head of their CDO business, deemed his firm to be some kind of ethical, experienced CDO manager even though he had zero experience in the mortgage business and was consistently being sued for stock manipulation by the penny stock companies he did PIPE deals with.

It wasn’t until late 2008 that Ribotsky’s miss-management style showed up in his $800mn-ish hedge funds. He put the screws to his investors by suddenly throwing up a gate and locking in tons of mom and pop investors who still haven’t seen a return of their money. I first learned about Ribotsky when one of those investors, Sequoia Sun, contacted me while I was reporting for the New York Post. Sun had a sob story about Ribotsky promising to return his $250,000 investment, that he was going to use for a humanitarian project getting food to remote coastal villages, before the gate went up and then reneged on the redemption. The story was set to run at the NY Post in November 2008 but was held when NIR Group wrote News Corp counsel saying Sun was trying to bribe the fund and make up bad news about Ribotsky to get his investment returned. We latter learned it was NIR Group who did the attempted bribe and Sun agreed to testify to the Brooklyn DOJ who’d just began an investigation into how NIR was valuing his PIPE deals and charging investors excessive fees.

Since then I’ve reported multiple stories on the troubles at NIR Group at Dealbreaker, Greenwich Time, and Deal Flow’s The PIPES Report. Nathan Vardi at Forbes has also reported detailed accounts of Ribotsky’s shady dealing with investors and his top director Daryl Dworkin was even criminally charged with accepting bribes last year. Dworkin’s sentencing was delayed until July 15th and it’s our understanding he’s been working with the DOJ to help build their case against Ribotsky. Yet still with the DOJ’s investigation over 2 years old, and a very knowledgeable co-operating witness, no charges have been filed. Investors in NIR who contact me on the condition I don’t disclose their names, have lost hope in the DOJ’s investigation and I don’t blame them.

Based on my recent reporting it appears the SEC is finally much more active than the DOJ and interested in charging NIR and Ribotsky with securities violations but then we’ve seen the regulator get actively interested in 2005 and as Matt Goldstein of Reuters reminded us nothing happened. In April, I detailed at DealFlow Media how one of NIR’s portfolio companies, Ingen, had turned over evidence on the hedge fund’s role in pumping the stock before Ribotsky converted it and using unregistered broker dealers to move the penny stock. So I’m not surprised the SEC picked his firm as their first guinea pig to go after third parties, CDO collateral managers, role in misleading other institutional investors and breaching their fiduciary duties. But still we have to wonder if they can really build a case this late in the game.

Jonathan Pickhardt, a rockstar securities attorney who represented a foreign bank Rabobank, tried to sue Merrill in 2009 for getting the bank involved in the Norma CDO when they knew NIR Group was allowing Magnetar to really ‘manage’ the collateral selection. He fought with NIR Group for over six months to turn over documents relating to their interaction with Magnetar but as usual NIR Group stalled and wouldn’t comply with subpoenas. The case eventually settled for an undisclosed amount in August 2010 but not before Pickhardt filed public letters to the judge calling out NIR and Merrill’s shady partnership.

Pickhardt wrote in March 2010, “One of Rabobank’s central allegations is that Merrill fraudulently induced Rabobank’s loan by falsely touting the integrity of NIR and the rigorous and independent process NIR employed to select assets. Rabobank alleges that Merrill knew that NIR was a corrupt manager that was beholder to Merrill for its existence and the NIR had abdicated its responsibilities by allowing Norma’s portfolio to be used for effecting hedge and short positions.”

Pickhardt claimed he’s come to this conclusion based on discovery obtained through Merrill and clearly someone thought he had a solid claim because Merrill quickly pulled out the checkbook to make sure all that discovery wasn’t aired in open court.

ProPublica ended up writing a series of stories on the Magnetar-Merrill self destructing CDO saga last year and even won a Pulitzer for their coverage (I personally think this award should have been split with the WSJ who was first to break and highlight the problems). With multiple documented, on the record, reports on the methods and alleged (but blatant) illegal actions of Ribotsky dating as far back as late 2007 we have to shake our heads and wonder why the SEC cares now. Does it really take the pressure of the press, and a journalism award, to finally get the SEC to do their job and go after the players who cheat investors and give Wall Street capitalism a dirty image? At this point how do we know there’s even any evidence still around to build a case? If the SEC needs some direction I’d suggest they start by asking: Did the biggest microcap short seller (NIR) use their insider look at Norma and also buy credit default swaps against Norma’s demise?

Let’s hope for the sake of free markets at least one bull dog regulator finally figures it out.

Greenwich Capital’s James Glover admits to stealing from RBS

This story was originally published at Greenwich Time last year. James Glover finally plead guilty on June 1st to one count of interstate transportation of money obtained by fraud stemming from an embezzlement scheme. The Department of Justice said he stole $625,000 from January 09-10 but lucky for RBS he gave it all back (a fact I reported would happen over a year ago). Sentencing isn’t until September and he could face up to ten years in jail plus a fine of $1.25mn. When I first reported on Glover for Greenwich Time a RBS spokesman wouldn’t admit which authories were investigating the scheme. We now learn it was the Secret Service. Oddly, my former peer at Hearst CT Newspapers didn’t mention in his story on Glover that the paper(via me) had published a detailed report on Glover’s fraud a year before and that last week we finally learned my report was dead on and way ahead of the DOJ’s announcement of fraud.

EX-RBS Executive James Glover sees Upstate NY Investment at Risk (2010-03-09 21:23) – Teri Buhl

The Royal Bank of Scotland executive who was fired from the bank’s securities trading operation is still a free man. James M. Glover, who goes by Jamie, ran the back office operations for Greenwich Capital, the securities firm bought by RBS that operates like an internal hedge fund. After RBS discovered Glover’s indiscretions though an internal review, people who work with him say he was grilled for eight hours before they escorted him out of the building. The news was first reported at Dealbreaker after internal whistleblowers called in to report the problem, saying Glover used junior staffers to siphon off funds from trades. The bank’s press man, Mike Geller, confirmed Glover’s dismissal and involvement in the trading scandal but was vague about which authorities they turned Glover over to. Geller told Greenwich Time they wouldn’t comment further since the investigation is still ongoing.

We can confirm that Glover, 52, lives in West Harrison, N.Y., with his wife, Jeanette, who teaches preschool at Rye Country Day school. When we reached Glover at home last week he told us he was surprised RBS released his name as being involved in the case. He quickly referred all future comments to his criminal defense lawyer, Gene Riccio, of Bridgeport-based Gulash & Riccio. Riccio told Greenwich Time that at this time they are not commenting about what happened at RBS or any pending actions.

Ron Geffner, a former Securities and Exchange Commission enforcement lawyer, told Greenwich Time after being asked if it was normal for the Feds to take no action for a month after the bank reported the case, “Glover’s likely not arrested yet because the feds don’t see him as a flight risk and he is working with authorities to plead out a deal. Or best case scenario, they still don’t know yet if he is guilty of criminal charges.”

Why a respected and seasoned financial executive would risk his livelihood after two decades with Greenwich Capital is yet to be answered. But according to multiple people who worked with him, Glover was vocal about RBS taking away cash bonuses last year and mad about what he felt wasn’t fair pay for performance. Many also knew about his dream to build beautiful luxury mountain homes in his favorite ski town, Windham, N.Y.

Glover has a second home he shares with his sister, Janet Glover, in Windham. But just three weeks ago, after his separation from RBS, he put the home up for sale. A Windham neighbor told Greenwich Time they were surprised he was going to sell the house considering he just finished an addition. The nine-bedroom, five-bath ski house is appraised for around $800k and listed at $1.1 million. Glover’s neighbor and local Realtor, Carol Shaw, told Greenwich Time she thinks he’s priced it to sell right away.

You see, in June 2008 Glover took out a very large building loan and security agreement against the house and another piece of land in Windham from Port Chester-based USA Bank. Building loans are typically due in 18 months to two years and the pressure to pay this one off was mounting. If not paid off on time, the Glovers could risk losing their home and other Windham real estate investment. Glover had partnered up with Thomas Poelker, a builder in the upstate New York resort community, to develop a luxury subdivision near the Windham ski resort. According to people familiar with the transaction they bought the undeveloped 75 acres of land for around $1 million a few years ago. It was subdivided into 9 lots, a road was built into the area, and one 10,000 square foot spec house is under construction.

One lending financier who spoke on the condition of anonymity because the deal is private, told Greenwich Time that Glover came to him a few months ago and said he was really worried about the balloon payment coming due on the $3.6 million dollar loan he took out against the second home in Windham to help finance the luxury development. While he was still employed with RBS, the financier told him he would have to try to do a workout with the bank, and that refinancing wasn’t likely. The unfinished spec house has been for sale for a year for $5.9 million. According to a local Realtor, no spec-built luxury home has ever been sold in the area for more than $2 million. Many locals question if this level of luxury second home living will find a willing buyer in this economy. USA Bank would not comment on whether it will foreclose or do a workout if Glover can’t make his loan payment. When we reached Janet Glover, James’s sister who co-signed on the loan, she would not comment on how they plan to make the payments.

For now it’s a wait-and-see game. Even if no criminal charges are levied, will Glover’s somewhat overleveraged lifestyle and side investment projects turn into financial ruin?