The Financial Industry Regulatory Authority is seeking sanctions against Laurence Allen, an investment broker who was found guilty this past February of securities fraud.
FINRA, a private self-regulatory organization that oversees investment firms, claims that Allen, of Greenwich, made numerous false statements and misrepresentations to investors to sell securities in NYPPEX Holdings of Rye Brook.
Allen controlled and managed NYPPEX, an online trading platform, and several other entities.
In 2018, a Manhattan Supreme Court judge ordered Allen not to dispose of company assets while the state attorney general investigated him for securities fraud.
Under FINRA’s rules, the court order automatically disqualified Allen from associating with NYPPEX and cut him off from investor funds.
“Allen quickly shifted his efforts to finding funds elsewhere,” the FINRA complaint states. Undeterred by the attorney general’s investigation, he “devised and orchestrated an aggressive sales campaign to raise $10 million through the sale of securities in NYPPEX Holdings.”
Allen hired Corporate Valuation Advisors Inc. to put a value on NYPPEX.
He did not tell the firm that he and his company were under investigation, according to the complaint.
The valuation firm agreed to do a report for management planning purposes. Its conclusions were not to be construed as investment advice and were not to be disseminated to the public.
The report would exclude assets and liabilities, according to the complaint, and the financial information was provided by Allen.
He projected net revenues from $7 million to $53.2 million in 2019 and from $27.6 million to $55.2 million in 2020. The actual performance for 2018 — a net loss of $1.3 million — was not considered.
Allen was projecting revenue increases of 2,400% to 4,900%.
Based on Allen’s numbers, Corporate Valuation Advisors concluded that NYPPEX was a going concern worth more than $108 million.
Within weeks of receiving the report, FINRA says, Allen began publicly touting the $108 million valuation to sell shares in NYPPEX.
FINRA claims that Allen repeatedly made false and misleading statements, omitted key facts, and failed to disclose risks and benefits in a balanced way to prospective investors.
For instance, he allegedly claimed that NYPPEX clients included major financial institutions, pension funds, foundations and trusts that had not been customers for years.
An individual highlighted as a “key talent” and the head of the firm’s software and artificial intelligence development had not worked for NYPPEX for eight years.
Allen falsely claimed that NYPPEX and its subsidiaries had years of exemplary compliance, FINRA says.
In 2019, Attorney General Letitia James sued Allen and his companies for allegedly defrauding investors and misappropriating more than $13 million.
Manhattan Supreme Court Justice Barry R. Ostrager found Allen and his companies guilty of securities fraud after a 4-day bench trial in February.
Allen had diverted money to NYPPEX and used the funds to pay himself an exorbitant salary, Ostrager ruled.
“NYPPEX is and always has been a failing broker-dealer that has a $44,000 software package purchased from a third-party vendor,” Ostrager said. The valuation was based on “incredible assumptions supplied by Allen that bear no relationship to reality.”
He ordered Allen and his firms to disgorge $7.9 million in ill-gotten gains.
Allen has appealed the decision.
FINRA is asking an arbitration panel to find Allen in violation of several agency rules and to impose sanctions, including a monetary award.
FINRA also filed a disciplinary action against Michael Schunk, the chief compliance officer of Allen’s firm, for allegedly failing to supervise Allen.