NY Attorney General James Wins Nearly $7 Million in Relief for Defrauded Investors, Removal of Private Equity Fund Manager
Court Finds “Breaches of Fiduciary Duty, Misappropriation of Enormous Sums of ACP Capital, and Outright Fraud”
Court Holds Six-Year Martin Act Statute of Limitations Applies Retroactively
NEW YORK (STL.News) New York Attorney General Letitia James yesterday scored a major victory for investors defrauded by a private equity fund manager who misappropriated millions of dollars in investor assets. Yesterday afternoon, New York County State Supreme Court Justice Barry R. Ostrager found the defendants — fund manager Laurence Allen; ACP Investment Group, LLC; NYPPEX Holdings, LLC; ACP Partners X, LLC; and private equity fund ACP X, LP — liable for defrauding investors in ACP X, ordering Allen and the various corporate entities he controls to pay nearly $7 million in relief, in addition to appointing a receiver (a neutral third-party) tasked with winding down the fund so that investors can no longer be defrauded.
“This decision shows that corporate greed never pays,” said Attorney General James. “For years, Laurence Allen bilked investors out of millions of dollars and used this investment fund like his private piggy bank. With this decision, we are delivering nearly $7 million in relief to those who were defrauded and winding down this fund to finally end this fraudulent scheme. My office will continue to use every tool at its disposal to stop this type of illegal activity, as we seek to protect investors from the self-dealing of financial fraudsters.”
In December 2019, Attorney General James filed a suit against Allen and the corporate entities he controls for defrauding investors and misappropriating millions of dollars in ACP X assets to enrich himself and his companies between 2008 and 2018. In February 2020, she obtained a preliminary injunction against the defendants.
In the decision, Justice Ostrager found that Allen and the “maze of entities” he owned and controlled defrauded ACP X’s investors by making “hopelessly conflicted” investments of fund assets in NYPPEX Holdings, the holding company for Allen’s own struggling broker-dealer. This deception was contrary to Allen’s promises and repeated representations to investors.
Further, the court found that NYPPEX Holdings “utilized these funds to pay Allen exorbitant NYPPEX annual salaries, totaling approximately $6 million, as well as to pay the salaries of his staff” rather than paying those returns to investors. Allen and the defendants under his control also fraudulently profited by taking millions of dollars in carried interest to which they were not entitled, and by wrongfully causing ACP X to cover NYPPEX Holdings’ operating expenses.
Justice Ostrager found that the evidence “revealed a shocking level of self-dealing, breaches of fiduciary duty, misappropriation of enormous sums of ACP capital, and outright fraud.”
In light of these facts, the court ordered Allen and the other defendants to disgorge approximately $7 million of ill-gotten gains, appointed a receiver to wind down the fund and protect investors’ remaining assets, and ordered additional injunctive relief to prevent future fraud.
The decision marks the first time that a court has addressed the question of whether the six-year statute of limitations for New York’s Martin Act — passed by the state legislature in 2019 — applies retroactively, finding that it does.
In a separate case addressing fraud by a private equity firm, Attorney General James yesterday filed a lawsuit against a New York private equity fund manager — GPB Capital — and five co-defendants for defrauding investors across the country out of more than $700 million through a Ponzi-like scheme that offered to pay investors generous monthly distributions they could never deliver. Attorney General James remains committed to taking action against financial services fraudsters who seek to take advantage of investors.
This lawsuit was handled by Assistant Attorneys General Jaclyn Grodin, Kenneth Haim, and Jonathan Zweig; Acting Deputy Bureau Chief Shamiso Maswoswe; Chief Accountant Margaret Kurta; Legal Assistants Renata Bodner, Eddie Aguilar, and Elijah Maksimov; and Administrative Assistant Rose Selitto — all of the Investor Protection Bureau — under the supervision of Bureau Chief Peter Pope; with additional support by Senior Enforcement Counsel for Economic Justice Kevin Wallace and Information Technology Specialist Matthew Rosenberg. The Investor Protection Bureau is a part of the Division for Economic Justice, which is overseen by Chief Deputy Attorney General Chris D’Angelo and First Deputy Attorney General Jennifer Levy.