Redemption Lawsuit Against NIR Tossed

May 3 2011 | 4:06am ET

Embattled hedge fund NIR Group has one less thing to worry about. A New York state judge has thrown out a lawsuit against the Long Island firm accusing it of refusing to pay out redemptions, allegedly because doing so "would expose [NIR's] inflated valuation of the fund's assets."

The court did not rule on the merits of Palmetto Partners' March 2009 complaint; instead, it noted that the firm had filed it five days before the deadline for NIR to fill their redemption request. And the judge rejected Palmetto's argument that NIR's announcement that is was suspending redemptions was a contract violation; instead, it merely "notified investors that, in light of market conditions and liquidity concerns, investor withdrawals were not being suspended for the foreseeable future."

The setback for Palmetto comes just months after the firm was given the right to depose NIR founder Corey Ribotsky.

Palmetto and another aggrieved NIR investor, Stephen Mizel, have claimed that the Roslyn, N.Y.-based firm "provided investors with valuations of the fund's securities which are wholly fanciful" and that the hedge fund "has all the indicia of a scam."

NIR claims that its fund, which invests primarily in private investments in public equities transactions, enjoyed positive returns in 114 of 117 months.

In January, Ribotsky fired back, saying he was being "maligned in the press" and assuring investors in a letter that "we do not believe NIR has engaged in any wrongdoing."

NIR faces a federal investigation into whether it paid kickbacks in exchange for helping it inflate the value of its assets. Last year, a former analyst at the firm pleaded guilty to taking kickbacks, but the hedge fund emphasized that Daryl Dworkin "took steps to conceal the kickbacks from NIR's senior management."

NIR has said it is cooperating with the government probe.

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