Fund Manager Illegally Converted More than $13 Million in Investor Funds to Prop Up Failing Broker-Dealer
NEW YORK – New York Attorney General Letitia James today announced a lawsuit against Laurence G. Allen and the various corporate entities he controls for defrauding investors and misappropriating more than $13 million to enrich himself and his companies between 2008 and 2018. The complaint — filed in New York County State Supreme Court — alleges repeated and ongoing violations of New York’s Martin Act, Executive Law § 63(12), and other common law claims.
“Make no mistake: There is no safe haven for white-collar fraudsters in New York,” said Attorney General James. “My office will find and prosecute all who try to illegally profit from illicit activities and line their pockets with stolen funds. This lawsuit highlights the greed and hubris a single individual presented by allegedly using other people’s savings as his personal piggy bank and as a tool to prop up his failing businesses. We will continue to use every available resource at our disposal to pursue all who attempt to abuse and manipulate the system because no one is above the law.”
As alleged in the complaint, the action revolves around Allen’s management of a private equity fund called ACP X, LP (ACP) in Rye Brook, New York. ACP was launched in 2004 as a “fund of funds,” which would purchase interests in other private equity funds at a discount on the secondary market. Investors were told that ACP would identify investment targets through — among other avenues — a small broker-dealer, which Allen also controlled through his company NYPPEX Holdings, LLC (NYPPEX). But when NYPPEX ran into trouble, Allen began funneling investor money from ACP into NYPPEX and, in turn, into his own pockets. Between 2008 and 2018, Allen invested approximately $5.7 million of ACP’s assets into NYPPEX, while during the same period pocketing that exact same amount in NYPPEX salary. The investments in NYPPEX were not only contrary to the terms of the ACP private placement memorandum and partnership agreement but were made with almost no prospect of ever earning a return. NYPPEX continued to lose money and has only stayed afloat as a result of repeated and consistent cash infusions from ACP.
Beyond the investments in NYPPEX, the lawsuit states that Allen engaged in a number of additional schemes to improperly divert investor funds from ACP, including misappropriating $3.4 million in carried interest and improperly paying for the day-to-day business expenses of NYPPEX with ACP funds — both of which constituted direct violations of the terms of ACP’s offering documents.
To cover his tracks, Allen is accused of engaging in a range of deceptive and fraudulent behavior, including the fabrication of certifications that falsely represented that investments in NYPPEX had been vetted and endorsed by an investment committee, when in fact no such committee existed. The complaint further asserts that Allen created unreasonable and improbable valuations for NYPPEX that artificially inflated the overall value of the fund, which he then reported to investors. He additionally delayed the distribution of reports and audited financial records to investors. Allen encouraged investors to vote in favor of amendments to the original partnership agreements between his firm and investors by using false and misleading disclosures intended to deceive those investors.
Despite knowing that he was under investigation, the Office of the Attorney General (OAG) contends that Allen continued to engage in his offenses, and his fraudulent activity persists today. Since learning of the OAG’s investigation, Allen has invested at least another $1.7 million of ACP capital into NYPPEX, used at least $1 million from ACP to pay operating expenses for NYPPEX, and, in April 2017, improperly distributed more than $1.6 million in carried interest to himself and entities he controls.
More than 15 years after the fund launched, none of the current ACP investors have received the full return of their cumulative $17 million capital contributions or any portion of the more than $10 million in accrued, but unpaid preferred return due to them.
In December 2018, in light of the OAG’s allegations of ongoing violations and of Allen’s failure to comply with investigative subpoenas, the OAG obtained an order pursuant to Section 354 of the Martin Act. That order — which remains in effect today — restrained Allen from further misappropriation of ACP assets or otherwise enriching himself at the expense of investors. Yet, in the months after the 354 order went into effect, Allen apparently sought to raise funds for NYPPEX from outside investors without disclosing the ongoing OAG investigation or the fact that NYPPEX was subject to the terms of the 354 order. Allen also apparently asked investors to sign affidavits with significant factual misstatements and misrepresentations in an attempt to absolve himself of responsibility for his actions.
As a result, the OAG has filed an order to show cause seeking a preliminary injunction to continue the restrictions contained in the 354 order from last December and additionally seeks the appointment of a receiver to take control of the assets of ACP. The appointment of this receiver would ensure ACP’s orderly wind down, free of Allen’s fraud and the exploitation of assets that properly belong to ACP’s investors.
The lawsuit is being handled by Assistant Attorneys General Jaclyn Grodin and Kenneth Haim and Senior Enforcement Counsel Shamiso Maswoswe, with assistance from Legal Assistant Renata Bodner — all of the Investor Protection Bureau — under the supervision of Acting Bureau Chief Kevin Wallace. The Investor Protection Bureau is a bureau of the Division of Economic Justice, which is overseen by Chief Deputy Attorney General Christopher D’Angelo and First Deputy Attorney General Jennifer Levy.