NIR Group Investors Scream Valuation Fraud after Report of 97% Loss on Investments

Investors in a troubled hedge fund founded by Corey Ribotsky were told by the funds’ liquidator last week their hopes of recovering any real money was slim. I reported on the 97 percent drop in valuation for Growth Capitalist today in a story that details how main street investors who gave their pension money to NIR Group’s AJW Funds are shaking their heads in utter disgust. Investor frustration stems from the notion that the SEC has gathered a ton of new evidence to support their claims of asset valuation fraud in a new amended complaint against the hedge fund manager yet the Eastern District of New York DOJ hasn’t charged Ribotsky with any criminal wrong doing yet.

Ribotsky even came to investors with his dick in his hand this March trying to claim he’d been burned by the market and lost millions also via the fees he says he invested back into the fund. This effort is spelled out in a seven page letter sent to NIR Group investors that you can read below. Keep in mind Ribotsky wrote this letter after a court appointed liquidator kicked him out as fund manager in January and then the liquidator showed investors a cash flow report that reflected a completely different picture than Ribotsky had told them for years.

There is a ton of new details in the story on NIR at Growth Capitalist so go ahead and register for free to read it.

Editors Note: Growth Capitalist is a new trade publication founded by one of my former Dealflow Media editors, Brett Goetschius, who has a ton of experience reporting on finance for the institutional and main street investors. If you’re looking for news that helps you with the kind of investment research that hedge funds pay big banks millions of fees for Growth Capitalist could be a good starting point.

2012-03 Ribotsky Letter to NIR Group Investors

NIR’s Ribotsky Pigged Out on Fees while Investor Cash was Frozen

NIR Group’s court appointed liquidators, PricewaterhouseCoopers, have discovered Corey Ribotsky pigged out on fees while hundreds of mom and pop investors had their pension investments frozen. I reported this week for Long Island Business News, Ribotsky’s hometown paper, that the alleged hedgie fraudster is set to reap a whopping $52 million in fees. On top of that he had to resign from the fund after PwC and a group of US investors pressured him to quit after they realized the broker dealer market won’t do business with him because of reputation risk and his ‘management’ skills were not effective any longer.

There is a ton of detail on how investor cash was used while the funds were gated since late 2008 in the LIBN story so click here to read it. I will note that Ribotsky’s pressman Brad Gerstman told me this week Ribotsky has always told investors he reinvested his fees into the fund. But the PwC cash flow report shows only $300,000 was invested since November 2008. Hummm something doesn’t add up.

The staggering amount of fees is not the only thing PwC found when they were given access to NIR’s books. According to a Dec 15th letter, the liquidator also told some investors that funds were comingled. You see in Ribotsky’s view, although he sold investors into separate onshore and offshore funds, all their money was one big pot to do what he wanted with.

Ian Stokoe of PwC wrote, “In practical terms, NIR confirmed that while each Fund held one or more bank accounts, cash was routinely allocated from the various bank accounts to which ever entity needed it at the time to discharge liabilities.”

The FBI’s Mike Ryan has interviewed NIR investors for over two years now, and while investors say it was a relief to see the SEC finally sue Ribotsky for investor fraud, they simple don’t get why the Feds didn’t step in earlier and prevent the cash bleed from what appears to be needless fees on inflated assets.

UPDATE 2.6.12: DealFlow Media got the PwC liquidator on the record to say he’ll be looking into the legitimacy of the fees Ribotsky/NIR took while the funds were gated. This was something Ian Stokoe hinted he’d do when I first reported PwC was taking over the offshore fund this summer. So it will be important to watch if Ian follows through or is throwing out ‘friendly PR quotes.”