Leadership: NYAG Proceeding Against Laurence G. Allen and Allen Capital Partners
On December 5, 2019, the New York Attorney General filed an action against Laurence G. Allen, ACP Investment Group, LLC and related entities, arising out of fraudulent misconduct committed as general partner in managing ACP X, LLC. A copy of the Complaint can be found here.
According to the Complaint, beginning in 2004 Allen raised over $17 million in capital contributions from investors for a “fund of funds” strategy. Over the ensuing 15+ years, Allen diverted at least $5.7 million in funds from ACP to NYPPEX Holdings, LLC, a failing broker-dealer that Allen owned and controlled. Allen misrepresented the value of the NYPPEX assets, and other assets, in order to win ACP investors’ support for its management efforts, to adopt various amendments to the ACP governance documents, to cause investors to decline early deferrals in expectation of false future returns, and to obtain investors’ approval to extend the life of the ACP funds. Allen used the fraudulently inflated asset valuations to substantiate at least $3.4 million in carried interest payments to himself. ACP has rejected investors’ requests for accurate information concerning their investments interests and, over 15 years after initial subscriptions, ACP investors have still not received return of initial capital contributions.
The NYAG’s new action follows a multi-year investigation into Allen, proceeding under a little used section of the Martin Act, Section 354, which gives the Attorney General the power to obtain interim relief and conduct investigations under the jurisdiction of the Court, before bringing an enforcement action. In the 2018 Action, the NYAG obtained an order prohibiting Allen from taking any action adverse to ACP investors, but permitted Allen to make distributions pro rata among ACP’s limited partners (i.e., investors unrelated to Allen).
Following the 2018 Order, but despite the Court’s explicit (i) empowerment of ACP to make distributions to investors, and (ii) the Attorney General's subsequent attempt to facilitate such distributions, Allen continued his duplicitous conduct: initially, Allen failed to disclose the filing of the 2018 Action to investors. Later, Allen actually sought investors’ support against the Attorney General, requesting that investors sign false statements stating that they were satisfied with Allen’s performance and that the Attorney General's oversight was harmful to investors’ interests. Allen hindered the process for distributing assets to investors, causing two sets of his counsel to withdraw from the 2018 Action, and violating a Court directive to procure new counsel.
The Attorney General's new Complaint (the “2019 Action”) seeks redress for the actions determined in the preceding investigation, and particularly for Allen’s fraudulent portrayal of ACP’s financial performance and misuse of investor funds. In conjunction with the Complaint, the Attorney General petitioned by Order to Show Cause for the appointment of a Receiver, to oversee an orderly liquidation of the ACP assets on behalf of the investors, and prosecute any third-party claims on ACP’s behalf.
Both the 2018 and 2019 actions are proceeding under New York State’s Martin Act. The Martin Act includes New York’s “blue sky” laws, i.e., laws governing the offering for sale, purchase, or sale of securities within New York state, which grants the Attorney General enforcement power to combat investment fraud and abuse. In the 2019 Action, the NYAG invokes the broad reach of the Martin Act, seeking (i) legal remedies, (i.e., damages and restitution to ACP investors), (ii) equitable remedies, i.e., injunctive relief and the appointment of a receiver, and (iii) potentially criminal action against Allen.
The Martin Act contains some of the most stringent “blue sky” laws in the country, providing for broad remedies, including restitution to investors. The Martin Act does not, however, pre-empt a private litigant from bringing related common-law causes of action, including for breach of fiduciary duty or gross negligence. A private litigant’s claim may overlap a Martin Act enforcement action, and provide the investor with a parallel and direct means of obtaining relief — alongside of and in addition to any relief that the NYAG may obtain. The combination of state-enforcement and civil proceedings can provide a powerful and efficient means for investors to obtain complete relief.
Slarskey LLC is representing investors in ACP X, LLC.