The SEC has charged a Long Island, NY-based investment advisor with defrauding investors in hedge funds and misappropriating over $1 million in client assets. In a separate case, the Commission has charged a San Francisco, CA-based investment advisor for defrauding clients and falsifying documents during an investigation.

In the Long Island case, the SEC alleges that Corey Ribotsky and his firm the NIR Group “repeatedly lied to investors to hide the truth that his investment and trading strategy was failing during the financial crisis.” A specific example given in the statement is that Ribotsky told clients that despite market conditions he could liquidate all the investments in his private investment in public equity (PIPE) trading strategy in 36 to 48 months, which the Commission calls a “practical impossibility given the size of the investments.” At the same time he used investors’ funds to buy luxury-brand items.

NIR Group’s range of funds, called AJW Funds, provided cash financing to distressed, emerging growth, and start-up micro-cap companies quoted on the Over-the-Counter Bulletin Board or Pink Sheets, according to the SEC’s complaint filed in the district court in Brooklyn, NY. This strategy showed “signs of failure” in mid-to-late 2007, according to the statement, but Ribotsky is charged with making false and misleading statements to investors so the funds appeared successful. Meanwhile, the SEC alleges he had been siphoning off assets since 2004.

The complaint seeks a judgment preventing Ribotsky and his firm from future violations of the securities laws violated in the case and ordering the parties to disgorge any ill-gotten gains plus prejudgment interest and pay monetary penalties.

In the San Francisco case, the Commission alleges that Kurt Hovan misappropriated over $178,000 in “soft dollars”. These are credits or rebates from brokerage firms on commission which has been paid by clients for trades executed through the accounts of their investment advisor. The advisor can retain these credits to pay for select brokerage and research services which are in the client’s benefit, but must disclose the fact appropriately, according to the SEC.

Rather than using the soft dollars to pay for legitimate research services, Hovan is charged with funneling them to cover office rent, computer hardware, and his brother’s salary, the regulator says. His brother, Edward Hovan, and his wife, Lisa Hovan, have also been charged for their roles in the allegedly fraudulent scheme.

The Commission claims that to cover up the scheme, the three Hovans created a shell research firm called Bolton Research and invoiced Hovan Capital Management’s brokerage firms for research services through it.

When the SEC examined Hovan Capital Management back in 2010, Kurt Hovan “quickly drafted numerous research reports and doctored materials to make them appear as if they had been prepared by Bolton,” according to the Comission’s statement.

The complaint seeks injunctive relief, disgorgement with prejudgment interest, and financial penalties, and the US Attorney’s Office for the Northern District of California yesterday filed criminal charges against Kurt Hovan.