The lawyer representing Laurence Allen, who has been accused of a long-running fraud by the Office of the New York State Attorney General, will argue that an injunction against his client and his companies, as well as the appointment of a receiver, should not be signed off by a judge.
Speaking with sister publication Private Funds CFO last Thursday, Allen – the chief executive of secondaries trading platform NYPPEX – denied all the allegations against him, including that there had been no investment committee independently evaluating his investment decisions.
On Friday 6 December, Allen’s counsel, Leo Borstein of law firm Borstein Turkel, said he would argue that the vast majority of limited partners in Allen’s ACP X fund, which is a focus of the suit, are not residents of New York state and there have as yet been no affidavits filed by LPs claiming they have been defrauded.
Borstein said he had yet to receive full details about the 75-80 LPs in the fund, but that his preliminary investigation indicated that only about four reside in the state. “I don’t know that the judge will sign the order to show cause when he finds that out,” Borstein said.
The lawsuit, reported by Secondaries Investor last Thursday, claims Allen used up to $13 million of investor capital from a 2004 secondaries fund he runs, ACP X, to keep NYPPEX afloat and pay his own salary. Allen is also accused of making misrepresentations to investors in the fund, including that proposed investments would be certified by an investment council – something the attorney general’s office claims does not exist.
A meeting at a court with representative counsel is to take place on 9 December to schedule hearing dates.
Borstein said he had not yet read the entire 229-paragraph complaint. He noted, however, that the suit and the 2018 injunction that has frozen ACP X’s assets appeared to originate from a complaint by one LP which, as the lawsuit claims, wanted Allen to buy it out early from the fund and threatened to file a claim of mismanagement if this did not happen.
According to the lawsuit, two other investors sought to be redeemed in 2017. Allen allegedly refused, saying that ACP X was not a hedge fund and that it would have to offer the same deal to all LPs. He allegedly did not mention the previous request for a buyout, which the lawsuit states was made in 2014.
“Early buyouts are specifically covered in the [fund] documents,” said Borstein. “They are subject to the approval of the managing member, and [the investor] is apparently upset. He didn’t say he was being defrauded. He just said he wasn’t being bought out.” Borstein added that the investor was “ultimately” bought out.
The lawsuit indicates that Allen bought out the position in mid-2014 for about $712,000. The attorney general’s office says these funds were wired from an ACP bank account directly to the LP.
The attorney general’s office is requesting an injunction that would maintain restrictions imposed under a December 2018 order, which froze ACP X’s assets. The office is also requesting the appointment of a receiver for the assets. The attorney general’s office did not respond to a request for comment by press time.
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Story modified for Secondaries Investor by Rod James.