The SEC has charged an unregistered Long Island-based investment advisor with stealing more than $1 million in client assets and using the money to purchase luxury items that included a Rolex watch, and Mercedes Benz and Lexus automobiles. 

The SEC alleges that Corey Ribotsky and his firm NIR Group LLC repeatedly lied to investors to hide the truth that his hedge funds' private equity investments were failing during the 2008 financial crisis. The SEC also alleges that Ribotsky falsely told investors that, despite the adverse market conditions, he could liquidate all of the private investment in public equity (PIPE) in 36 to 48 months, which the SEC contends was impossible given the size of the investments.

According to the SEC's civil complaint filed in federal District Court in Brooklyn, N.Y., on Wednesday, NIR's family of AJW Funds provided cash financing to distressed, emerging growth and startup micro-cap companies quoted on the Over-the-Counter Bulletin Board, or the Pink Sheets. The AJW Funds were typically invested in 120 to 130 different companies. Ribotsky lied about the funds' performance to cover up their losses, and used money from new investors to pay off early investors in 2007, according to the SEC.

The SEC also alleges that Ribotsky, 40, used investor money to write himself checks to pay for luxury items, including $15,750 for a Rolex watch and $24,681 on the Mercedes and Lexus car payments.  

"In a classic betrayal of trust, Ribotsky stole from his investors and falsely assured them that his struggling hedge funds were thriving," said Robert Khuzami, director of the SEC's Division of Enforcement. "This enforcement action reflects our continuing commitment to bring to justice individuals and companies that committed fraud during the credit crisis."

Ribotsky is being represented by Bradley L. Gerstman, attorney and partner of New York City-based law firm Gerstman and Schwartz, who issued a prepared statement contending that his client is innocent and the SEC has failed to make its case.

"After years of investigating claims of ponzi scheming and fraudulent valuation, primarily lodged by two disgruntled former employees who had been terminated for improper conduct, The NIR Group and its Managing Partner, Corey Ribotsky have been vindicated in part by the fact that the Securities Exchange Commission's (SEC's) long running investigation failed to make a case in support of these specious claims," Gerstman said.

  Added Gerstman: "There are no claims that NIR fraudulently valued the assets of the funds or that NIR took fees that it was not entitled to take.  Rather, the SEC's complaint focuses on an alleged misappropriation of approximately $1 million dollars against the backdrop of a fund that had in excess of $800 million in total assets in addition to tens of millions of dollars of fees paid to NIR."

Gerstman claims the remainder of the SEC's complaint "cherry picks" emails from 2007 and 2008 in an attempt to allege that NIR and Mr. Ribotsky mislead a very small number of investors or potential investors about the time it would take to liquidate the portfolio of the NIR funds. "The SEC's complaint makes no mention of the offering memorandum given to potential investors or the risk warnings set forth in said memorandum addressing the very risks they claim are at the center of their allegations," Gerstman said.

Added Gerstman: "The (SEC) complaint appears to be a stretch in an attempt to justify approximately two years of time and resources poured into the investigation. NIR and Mr. Ribotsky look forward to defending these allegations in court."

The SEC is seeking a judgment to permanently enjoin Ribotsky and his company NIR Group, LLC from future violations of securities laws and to order them to disgorge of any profits and interests and pay unspecified monetary penalties.

-Jim McConville