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Are the Feds getting closer to nailing NIR Group for stock kickback scheme?

February 26, 2010 at 1:48 pm by Teri Buhl

http://www.hedgetracker.com/article/Are-the-Feds-getting-closer-to-nailing-NIR-Group-for-stock-kickback-scheme

A Long Island hedge fund is back in the news today with new allegations that Feds are looking into. According to the Wall Street Journal, NIR Group, run by Corey Ribotsky, is now cooperating with federal authorities over allegations that it paid kickbacks to stock promoters as part of a scam to inflate the value of its holdings.

News of trouble at NIR Group was first reported by Nathan Vardi at Forbes, who highlighted a mafia-style drama between Ribotsky and one of his investors, Gerald Tucci, who sent tough guys to threatened Ribotsky after they realized the assets under management they were paying fees onwere not the real value of the fund and demanded a redemption. In the Forbes story, Ribotsky claimed that his fund has an outside valuations expert, WTAS, that verified the assets, but a few days later Dealbreaker broke the news that the valuation firm was actually not working with Ribotsky any longer and wouldn’t verify if the asset values were correct. Last summer we first learned that the SEC was investing the fund, based on a Dealbreaker report, and then the WSJ got wind the Brooklyn DOJ was also looking into investor fraud at NIR Group.

Now, eight months later, the WSJ brings NIR Group back into the news cycle with no details of which stock — or which of the penny-scam promoters — the DOJ is looking into for kickbacks allegedly paid by Ribotsky’s fund. First of all, we can verify that Brooklyn Assistant U.S. Attorney Winston Chan is indeed investigating NIR and has been for nearly a year (he even has a grand jury sitting), but no charges have been filed yet.

According to people familiar with the investigation, one of the suspect stocks is Ingen Technologies Inc., in which NIR Group’s AJW fund is a huge shareholder in because of a PIPE (private investment in public equity) deal they did with the company. PIPE deals are often short-term loans to distressed companies that convert to discounted stock when the company can’t pay back the loan. Ingen has paid down about 50 percent of its loan principal to NIR — from $4.5 million to $2.1 million as of last week. Ingen ‘pays’ NIR in stock, 40 million shares per week and only gets credited for payment after NIR sells and provides documentation of what the proceeds were.

Ingen has multiple stock promoters. Most stock promoters disclose that they are getting paid to promote the stock but don’t list who is paying them. For the DOJ to nail NIR Group they have to prove that NIR hired companies to promote the stock and those companies paid straw buyers to buy the shares so it looks like there is more market action in the stock.

When news first broke last year about the SEC investigation, people who worked with Ribotsky said he wasn’t worried and even laughed at the charges. Today, one person who still works with the fund told Greenwich Time, “He’s not so cavalier these days.”

People inside the DOJ point out that it usually takes at least 18 months to investigate a white-collar securities offense like this. So if you have information about being a straw buyer or stock promoter in any of the NIR Group stocks, we are sure these guys would love to hear from you.

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