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December 06, 2019 at 05:00 PM
Investment advisor and private equity fund manager Laurence G. Allen has been sued by New York Attorney General Letitia James for using investor funds to bolster up his flailing parent firm, NYPPEX. The lawsuit, filed in state Supreme Court in New York County, alleges repeated and ongoing violations of defrauding investors and misappropriating more than $13 million to enrich himself and his companies between 2008 and 2018.
The complaint revolves around Allen’s private equity fund ACPX, fully owned by Allen’s investment advisor, ACP Investment Group, both based in Rye Brook, New York. He launched ACPX in 2004 as a fund of funds to invest in other private equity funds at a discount on the secondary market. Originally it had 75 clients.
Allen claimed to use his broker-dealer, Relief Defendant NYPPEX, a company controlled through parent NYPPEX, to help target potential investments. However, “Allen began funneling investor money from [ACPX] into NYPPEX and, in turn, into his own pockets,” when the firm’s parent ran into trouble, according to the AG.
“The 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 business,” James said in a statement.
According to the complaint, Allen began funneling approximately $5.7 million of ACP’s assets into NYPPEX while he “pocketed” the same amount in salary. These actions were “contrary” to the private placement memorandum and partnership agreement and “were made with almost no prospect of ever earning a return,” the AG’s office stated, which added that NYPPEX continued to lose money and stayed afloat only by infusions from the private equity fund. The complaint stated:
“Notwithstanding the Company’s losses, inability to generate profit-sustaining income, and failure to create an online trading platform, Allen awarded himself annual compensation from NYPPEX that regularly exceeded $400,000 and has reached more than $900,000 in recent years. For example, in 2016, Allen paid himself $909,000 from NYPPEX, although that same year the Company generated revenues of only $2.3 million and incurred $870,000 in operating losses.”
In addition, he allegedly diverted $3.4 million in carried interest and improperly paid for the day-to-day business expenses of the fund and BD.
Bad Advice
Allen also is accused of telling investors that investments in NYPPEX had been “vetted and endorsed by an investment committee, where in fact no such committee existed,” states the AG. He also, alleges the AG’s office, created “unreasonable and improbably valuations for NYPPEX that artificially inflated the overall value of the fund, which he reported to investors.”
