Home Banking & Finance Judge finds ‘shocking level of self-dealing’ in Rye Brook broker’s $13M ‘looting’...

Judge finds ‘shocking level of self-dealing’ in Rye Brook broker’s $13M ‘looting’ case

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A Manhattan judge has blocked a securities broker from disposing assets of several Rye Brook companies he controls, pending a trial on fraud charges.

New York Attorney General Letitia James is trying to shut down ACP Investment Group and affiliates and to permanently bar managing partner Laurence G. Allen of Greenwich from selling securities, claiming that he has looted $13 million from the enterprises.

“A shocking level of self-dealing” has been revealed, Manhattan Supreme Court Justice Barry R. Ostrager ruled on Feb. 4, including “misappropriation of enormous sums of ACP capital and outright fraud.”

Allen had stated in a December email that the attorney general’s allegations are without merit, the lawsuit is a “misdirected interference with private contracts among sophisticated investors,” and the state does not understand the nature of his business.

But after reviewing 58 documents and hearing Allen and 10 witnesses testify at a five-day hearing, Ostrager found that the attorney general “has established a likelihood of success” in a June trial.

Without the restraining order, Ostrager said, “the wind-down of the fund will likely proceed in a manner that furthers Allen’s self-interest to the detriment of the limited partners.”

Allen launched an ACP fund in 2014 with $17 million in contributions from 75 limited partners. He controls ACP, broker-dealer NYPPEX Holdings, several similarly named entities and other enterprises.

As general partner, Allen had substantial discretion in managing ACP. But the partnership agreement also restricted him from receiving carried interest payments – a type of performance fee based on a fund’s returns – until the limited partners got back their entire capital plus 8% interest.

ACP could pay broker fees to NYPPEX, but had no obligation to pay the broker’s overhead or administrative expenses.

But Ostrager found that ACP never returned the limited partners’ entire original investments, and it had invested $5 million in cash and a $1 million credit line in NYPPEX. From 2008 to 2018, NPPEX paid Allen more than $6 million.

A former NYPPEX treasurer, Robert Zimmel, testified that every certification he and Allen signed from 2013 to 2017, including valuations, was a lie.

When ACP’s limited partners began to question their investments, Allen persuaded them to amend the partnership agreement, allegedly based on false statements, to allow him to collect carried interest.

Allen then distributed more than $3.4 million in carried interest payments to himself.

“Mr. Allen has offered the fanciful explanation of the suspicious circumstances,” Ostrager noted, that NYPPEX “will produce windfall profits for the ACP limited partners because the value of NYPPEX Holdings exceeds $100 million.”

“The court does not credit any of this testimony,” Ostrager stated, “and finds that ACP was essentially a piggy bank to fund a failing broker-dealer, its failing parent, and Mr. Allen.”

“In short,” Ostrager ruled, “the court cannot allow Mr. Allen or any of the companies he controls to make any decisions with respect to the remaining and very modest assets of ACP.”

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