Report: Hedge Fund NIR Face Criminal Probe

Jul 27 2009 | 12:48pm ET

NIR Group’s legal troubles may be going from bad to much, much worse.

The Long Island hedge fund and its manager, Corey Ribotsky, are the subject of a criminal probe to determine if they misled investors about returns, The Wall Street Journal reports. The news comes in the wake of a second lawsuit filed against NIR accusing it of lying about its performance.

The story of the criminal probe reportedly comes from a disgruntled former employee of the Roslyn, N.Y.-based hedge fund. The Securities and Exchange Commission, Federal Bureau of Investigation and federal prosecutors in Brooklyn, N.Y., are looking into allegations that Ribotsky defrauded investors, according to the Journal, although NIR said it has “no knowledge of any criminal investigation” and has not been contacted by the authorities.

No criminal charges have been filed against either NIR or Ribotsky.

NIR has been sued twice in the past year by investors who say the firm has been making up its returns, which have been positive in 114 of 117 months. Most recently, an investor angered by NIR’s refusal to fill his redemption request accused Ribotsky of providing investors “with valuations of the fund’s securities which are wholly fanciful.” The earlier lawsuit, which was settled earlier this year, alleged that NIR’s returns make “no sense.”

Despite its claims of strong performance, NIR suspended redemptions last year. The Journal reports that the firm was boasting about its performance as it sought to raise money just days before imposing the withdrawal ban. That move apparently also caused raised eyebrows among regulators.

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