Carnegie Development Inc. (CDJM)

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Nir is a former death spiral lender that now owns warrants and some common stock

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Hedge-Fund Manager Investigated for Fraud (WALL STREET JOURNAL)

Federal criminal authorities are investigating whether Corey Ribotsky, a Long Island, N.Y., hedge-fund manager who has said he has $770 million under management, lied to investors about their returns and the holdings of his various funds, according to people familiar with the matter.

Prosecutors from the U.S. attorney's office in Brooklyn and investigators from the Federal Bureau of Investigation and the Securities and Exchange Commission are looking at whether the 38-year-old Mr. Ribotsky and his firm defrauded investors as the stock market fell amid the credit crisis, these people said.

Authorities have not accused Mr. Ribotsky of wrongdoing. A lawyer for Mr. Ribotsky said he and the firm he heads, NIR Group of Roslyn, N.Y., declined to comment, "as they have no knowledge of any criminal investigation and have not been contacted by any authorities."

Spokesmen for the U.S. attorney's office, the SEC and the FBI declined to comment.

Since the financial crisis took hold, there have been a spate of financial fraud investigations. This is one of the larger ones based on the amount of assets the firm says it holds.

Mr. Ribotsky has invested through so-called PIPE transactions. "PIPE" refers to private investments in public equities, or transactions in which investors purchase stock in a publicly listed company, in a private transaction often below the stock-market price. Companies that participate in PIPE deals typically need to raise cash quickly and are willing to sell stock at a discounted price to do so.

Separately, outside of his hedge funds, Mr. Ribotsky was involved in managing more than $5 billion worth of mortgage-related securities underwritten by Merrill Lynch & Co. that lost much of their value amid the credit crisis, according to NIR press releases and other public information about the securities.

Mr. Ribotsky's funds have reported consistent, positive returns. In court documents that include correspondence between Mr. Ribotsky and his investors in one of his funds, AJW Qualified Partners, he said the fund had a return of more than 8% for the first nine months of 2008 and that NIR's funds had positive returns in 114 out of 117 months.

A fund called AJW Offshore II had annualized returns of more than 16% for the past three years, compared with an average 1% decline for that period for an index of about 2,700 hedge funds, according to BarclayHedge Ltd., a hedge fund research firm. The same AJW fund reported a 10% return in 2008, compared with a decline of 21.6% for the same BarclayHedge index, the research firm says.

Mr. Ribotsky and one of his hedge funds have been sued several times in recent months by investors who say they were improperly prevented from making redemptions last fall.

One lawsuit, filed in New York state court by Steven Mizel and his limited partnership, Palmetto Partners, alleged in New York state court earlier this year that Mr. Ribotsky refused to redeem their $1.7 million investment in one of his funds.

Mr. Ribotsky in court documents argued that shutting off redemptions had become routine due to the volatile stock market, and that he engaged in no wrongdoing. He said his fund was audited by accounting firm Marcum LLP. Calls to Marcum LLP and an email sent to managing partner Jeffrey Weiner were not returned.

Jordan Hershman, Mr. Ribotsky's lawyer, said Mr. Mizel's complaint doesn't support its "conclusory allegations." Mr. Mizel declined to comment. His lawyer wasn't immediately reached.

In another lawsuit against Mr. Ribotsky and his firm, also filed in New York state court, Gerald and Michael Tucci said that when they asked to redeem about $1.5 million, Mr. Ribotsky instead gave them securities in a small company and told them the shares' value were equal to their investment. When the investors tried to sell the shares, they discovered the shares were nearly worthless, according to the lawsuit.

Mr. Hershman said the suit was resolved when "a third-party investor bought from the Tuccis their investment."

In a letter sent to clients in his AJW Partners fund in October 2008, Mr. Ribotsky said they could move their money into a new fund or remain in the current fund, which would cease making investments, court documents in one of the private lawsuits show. About 92% of the old fund's investors elected to invest in the new fund, Mr. Ribotsky said, according to a court document.

Mr. Ribotsky recently founded a trade group to combat negative perceptions of PIPE investments, according to public statements by Mr. Ribotsky in May.

http://online.wsj.com/article/SB124840478374278275.html?mod=googlenews_wsj