Why is NIR Group Selling Investments for Little Cash Down?

NIR Group is offering sweet deals to third party funds who will convert their PIPE notes for them. I reported on one of the firesale deals this week for DealFlow Media and am still left wondering why NIR is asking for so little money down. To read the details of the deal, based on transaction documents I saw, go buy the DealFlow story.

When I interviewed NIR’s new attorney Brad Gertsman he couldn’t detail why NIR thought this was the best method to maximum the value of the investment—just that it was. The issues raised in my DealFlow story center on NIR’s liquidation strategy, which is being led in tandem with Cayman Islands offshore liquidator PwC. Gertsman also said that statements made by an unnamed person involved in the deal regarding Bobby Cohen telling potential buyers of NIR notes that they could not legally convert notes to stock right now were totally false.

If you read the DealFlow story…I’d love to hear from market participants or sophisticated investors on what you think NIR Group is trying to do here.

Editors Note: According to the NetCo (penny stock PIPE deal NIR did in 2002) term sheet, that was written by NIR Group, this is the list of NIR Group funds involved in the sale transaction. The last two funds are under control of the Cayman Islands court appointed liquidator PricewaterhouseCoopers.
AJW Partners, LLC
AJW Partners II, LLC
AJW Offshore, Ltd.
AJW Master Fund, Ltd.
AJW Qualified Partners, LLC
AJW Qualified Partners II, LLC
New Millennium Capital Partners II, LLC
New Millennium Capital Partners III, LLC
AJW Offshore II, Ltd. (PwC Corporate Finance and Recovery)
AJW Master Fund II, Ltd. (Pwc Corporate Finance and Recovery)

UPDATE 11-10-11 : In the early afternoon of October 27th I emailed NIR’s Bobby Cohen asking for comment on the NetCo sale to a thrid party fund that I was about to report for DealFlow Media. I listed statements made by multiple people involved in the deal and Bobby wrote the statements by my sources were totally false. I also interviewed NIR’s outside counsel Brad Gertsman three times that day about the details we were looking to verify. The information I uncovered for the story appears to set off NIR founder Corey Ribotsky because I just confirmed with the Nassau County 6th district police that a parking valet at NIR’s Roslyn office, on 1044 Northern Blvd, called the police saying he was being threaten by a building occupant. The call came in at 3:47 pm and a person at the scene said the occupant was Corey Ribotsky. It appears by the time the cops got there no police action was needed and the Nassau Police public affairs officer confirmed no charges were filed–but clearly something set Ribotsky off.

NIR Group Investors say Ribotsky Commited More Fraud during Reorganization

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.