Corey Ribotsky was charged by the SEC for misappropriation of assets in his NIR Group hedge funds but DealFlow Media is reporting the alleged fraud doesn’t stop there. Investors are now being told by PricewaterhouseCoopers, the fund’s court appointed liquidator, Ribotsky never signed the legal document that assigned collateral rights from the old AJW Master Fund to the new Master Fund 2 that was set up during the 2008 reorganization. This means PwC would have to pursue another legal battle for investors if they plan to kick Ribotsky out as collateral manager and stop paying him fees. In June, I reported at The PIPEs Report, PwC had been assigned liquidator for the Master Fund 2 and the Offshore fund; the reorganized funds where Ribotsky had told investors all the convertible PIPE notes sit.
Besides an obvious breach of contract dispute the SEC could now lobe another fraud charge on Ribotsky if they can prove he pushed investors into signing new offering documents in 2008 based on false promises. The problem for the SEC is since the funds are domiciled in the Cayman Islands and PwC is assigned by a Cayman Island court; the federal securities regulator has no real jurisdiction to subpoena PwC . In fact, the SEC might have to depend on the help of investors communicating with the funds liquidators to continue building their case.
But the SEC isn’t the only government agency still on Ribotsky’s tail. According to NIR Group portfolio companies (penny stocks who issued convertible notes to NIR in exchange for a loan) the DOJ has issued subpoenas last month for their transfer agents. Sources familar with the situation say this move means the DOJ is looking at all the penny stock sold and issued to NIR Group for at least the last five years. While the SEC sued NIR Group and Ribotsky for investor fraud we didn’t see any charges for illegal moves in the PIPE deals NIR Group invested in. Naked short selling is one complaint NIR Group portfolio companies have listed in their civil suits against the hedge fund over the years but Ribotsky always settles these suits before it’s time for him to testify during the discovery process.
The SEC lawsuit said Ribotsky’s former right hand man Daryl Dworkin was working with the government to help them build their case in return for lighter sentencing. Dworkin plead guilty to criminal charges for taking bribes last year but his sentencing was delayed. A DOJ spokesperson said normal time to sentencing is 10 weeks. The DOJ’s Brooklyn office told me last week Dworkin is now finally scheduled to be sentence on January 20th. So for now we wait and see if Ribotsky will need to add to his legal bills and also face fraud charges from the DOJ.
NIR Group Investors can read more about the NIR Group problems I was first to report on yesterday for The PIPES Report here.