Legal News

On Snowy Long Island, Feds Probing Alleged Kickbacks at Hedge Fund

By Ashby Jones

Boy did it snow a lot here in Gotham last night. Crossing 47th Street this morning we saw something we’d never seen before — an NYC cab stuck in the snow in the middle of the street, its wheels spinning with an angry futility. On any other day, it would have been blocking traffic, but not today. There was none.

In any event, aside from the snow and who’s going to win the gold in curling tomorrow — very hard to take the Norwegians against Kevin Martin and the mighty Canadians — everyone’s talking hedge funds this morning. For starters, a WSJ front-pager announces that a group of heavyweight funds have made huge bets against the euro.

A hedgie is also in the legal news Friday. Federal authorities investigating a Long Island, N.Y., hedge-fund firm are questioning individuals close to the firm about whether it paid kickbacks to outsiders as part of a scheme to inflate the value of its holdings. Click here for the story, from the WSJ’s Amir Efrati and Jenny Strasburg.

Federal officials have been investigating NIR Group since at least last year, according to people close to the matter. The criminal investigation centers on whether NIR managers including 39-year-old founder Corey Ribotsky (pictured) misled clients about investment returns tied to stakes NIR owned in small companies, the people say.

Authorities haven’t accused Ribotsky or anyone else of wrongdoing. A lawyer for NIR and Ribotsky, Jordan Hershman of Bingham McCutchen, said “The company is cooperating fully with the investigation. It is confident that the facts will show that NIR and Mr. Ribotsky acted properly at all times.”

NIR invests its hedge-fund assets primarily in small public companies through privately negotiated deals, making its holdings difficult to value, people familiar with the matter say. In return for money NIR put into small public companies, it often received notes that could be converted into stock at a discounted rate.

Authorities are investigating whether NIR valued certain notes at a higher level than the underlying companies’ value justified, people familiar with the matter said.

The investigators now want to know whether people with financial ties to some outside companies received compensation in exchange for helping NIR inflate values of its investments, such as by buying assets at inflated prices in return for some benefit outside the transaction, say people familiar with the matter.

Stay tuned.

Photo: Getty Images

Full post as published by Law Blog - WSJ.com on February 26, 2010 (boomark / email).