Investors Accuse NIR Group Of Providing ‘Fanciful’ Returns

Jul 22 2009 | 12:57pm ET

For the second time in a year, a Long Island hedge fund has been accused of reporting phony returns.

NIR Group, which manages $770 million, and its manager, Corey Ribotsky, “appear to have provided investors with valuations of the fund’s securities which are wholly fanciful,” according to an aggrieved investor.

Stephen Mizel, who sued NIR along with Palmetto Partners in March in an effort to get their redemption requests filled, appended the new allegations in a court filing last month, Forbes reports. NIR and Ribotsky have dismissed the charges as an effort to get around the firm’s redemption provisions, but Mizel and Palmetto argued in the filing, “even sophisticated investors are entitled to recourse against something which has all of the indicia of a scam.”

NIR’s AJW Qualified Partners invests primarily in private investments in public equity deals, claiming big returns despite the fact that the stocks in his portfolio often have plummeted in value. NIR says it has posted positive returns in 114 of 117 months. Despite the claims of strong returns, the firm suspended redemptions last year and gave investors the unpalatable choices of moving their money to a new fund with a three-year lockup, remaining in the existing fund with withdrawals still barred, or getting their money out over a two-year period.

Mizel’s lawsuit alleges that he and Palmetto have been trying to get their $1.7 million out since September—NIR suspended redemptions in October—and that NIR blocked withdrawals for “fear that redemptions would expose [NIR’s] inflated valuations of the fund’s assets.”

It is the second such accusation leveled against NIR: In November, investor Gerald Tucci sued NIR for fraud, alleging reports of performance that “simply makes no sense.” That suit was settled out of court earlier this year.

As for the current legal action against it, NIR “vigorously” denies any wrongdoing, noting that it employs an independent valuation firm.

“Mr. Mizel’s complaint is no more than a strike suit, seeking to obtain liquidity in spite of the terms to which he agreed permitting the fund to suspend redemptions,” NIR said in a statement.

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