I have first hand experience with NIR's structure and the problem, from my perspective, is the structure itself. Putting aside the fact that most of the companies NIR and, for that matter, Yorkville aka Cornell invested in were really bad bets, the very structure of the financings prevented any chance of success. In other words, the structures were killers for both the investor and the company. The idea of these ratchet down structures worked for a while as long as there was some liquidity in the companies shares. The fund managers would immediately short the underlying shares of the borrower company and profit as the shares inevitably moved south, based on the discounted conversion. Take a look at the SEC action against Gryphon Investments in Dallas and its principal Bucky Lyons iV. The problem with NIR and Cornell, is that there was almost never an underlying market to short so they were always dependent on the company's management to perform and generate increasing interest in the stock. In the absence of that positive scenario, the NIR structure forces the company to issue more and more stock, ruining the capitalization of the company as well as any chance for NIR to get whole. Rumors have been out there that NIR was a money laundering scheme and, because of that, they didn't care whether the investments paid off or not. No way to tell except to say that, with so many of their companies trading for pennies and no volume, there is no way NIR can ever get out. However, they should be in a unique position to work out favorable restructurings for those companies that do have viable business models.
