Long Island Investment Adviser Charged by SEC

In a September 29, 2011 article in the InvestmentNews.com, Andrew Osterland writes that the Securities and Exchange Commission (SEC) filed charges against unregistered Long Island investment adviser Corey Ribotsky for allegedly lying about the performance of his investment strategies and stealing more than $1 million from one of the hedge funds he managed.

According to the SEC complaint allegedly Ribotsky stole from his investors and falsely assured them that his "struggling hedge funds were thriving,” Robert Khuzami, Director of the SEC's Division of Enforcement, said in a statement. Mr. Ribotsky, through his firm The NIR Group, managed as much as $876 million in four hedge funds investing in private investments in public equities (PIPEs) between 2004 and 2009. He “misappropriated” over $1 million from one of those funds — the AJW Qualified Partners LLC Fund, to buy “such luxury items as a Lexus, Mercedes, and Rolex watch.”

“This, however, was a practical impossibility under the investment and trading strategy that NIR touted, given the size of the AJW Funds' PIPE investments and the adverse market conditions at the time,” the complaint stated

These false and misleading statements, writes Osterland, that the commission alleges Mr. Ribotsky made relate to assurances he gave investors between 2007 and 2009 that he could liquidate the PIPE investments over a three- to four-year period.

According to the SEC complaint, Mr. Ribotsky's strategy was to invest in convertible debentures of microcap — often distressed companies trading on the Pink Sheets (or OTC Link as it is now called). According to the complaint, the AJW funds often were entitled to receive billions of shares in companies that had very thin trading volume, making it impossible to sell the shares in the open market. Mr. Ribotsky suspended investor redemptions in October 2008, and in March it informed investors in the AJW Funds that NIR was going to unwind and liquidate the AJW Funds.

The InvestmentNews.com article continues with the SEC also alleges that in the fourth quarter of 2008, Mr. Ribotsky “purported to sell $43.2 million” of the fund's assets to a third party to show investors that the firm was still generating cash. The third party, however, paid with a promissory note on which he later defaulted. Mr. Ribotsky also allegedly sent out false documents to investors with the help of an employee, Daryl Dworkin, who was also charged in the complaint.

The article states that the SEC is asking for a judgment enjoining Mr. Ribotsky and his firm from further violations of securities laws, disgorgement of profits and interest as well as monetary penalties.