January 3, 2020
On December 4, 2019, New York Attorney General Letitia James sued ACP Investment Group, a brokerage firm in Rye Brook, New York and a former managing partner Laurence G. Allen for allegedly defrauding investors and misappropriating over $13 million. ACP is affiliated with NYPPEX, LLC, a broker-dealer, online trading platform, and member firm with the Financial Industry Regulatory Authority also based in Rye Brook, New York.
According to the Complaint, Allen launched a private equity fund in 2004 called ACP X that was not allowed to invest in NYPPEX or any other company Allen managed or controlled and he could not actively participate in daily portfolio investment operations, as stated in the fund’s private placement memorandum. ACP X was supposedly profitable for the first several years but took a steep downturn in the 2008 market crash when NYPPEX began experiencing cash flow shortages. The Complaint states that at this time, Allen began diverting funds from ACP X to NYPPEX, in violation of the private placement memo.
Over 15 years, 75 investors purchased $17 million in limited partnership interests from ACP X and to this day none of those investors have received a full return on their investments or the $10 million in accrued returns. Additionally, from 2008 to 2017, NYPPEX’s revenue totaled $25 million but its operating losses fell close to $9 million.
The most striking claim in the Complaint was that Allen allegedly transferred $5.7 million from ACP X and then paid himself that amount as his salary from NYPPEX which was “dramatically out of line with NYPPEX’s performance.” Further, the Complaint alleges that Allen inflated valuations of securities to attract new investors. Allen addressed this claim by stating that “Valuations have been reviewed annually by the independent auditor, which has resulted in a clean auditor letter each year.” Attorney General James accused Allen of manipulating investors to change the operating agreement and then paid himself or entities he controlled $3.4 million. Finally, Attorney General James asserts that Allen diverted $750,000 from APC X to pay NYPPEX’s operating expenses, though Allen maintains that all expenses have been allocated appropriately and consistently.
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