The Financial Industry Regulatory Authority has expelled a secondaries market broker-dealer and barred its former chief executive from the securities industry.
NYPPEX and Lawrence Allen were punished for “failing to respond in a timely and complete manner” to requests for information from a panel of FINRA investigators, the regulator said in a statement. The panel also found that NYPPEX and Allen had engaged in securities fraud.
The panel found that “NYPPEX and Allen are unfit to remain in the securities industry, and their continued presence would pose a substantial risk to the investing public”, according to the statement.
NYPPEX’s current chief executive and chief compliance officer Michael Schunk has been barred from roles in any “principal or supervisory” capacity for his alleged failure to supervise Allen. He has also been suspended for two years “in all capacities” for allegedly engaging in other misconduct.
“We disagree with FINRA’s decision and have filed our appeal, which enables Mr Allen and NYPPEX to continue his exemplary career as a pioneer in providing secondary liquidity in alternative assets,” said Jonathan Neuman, counsel to Allen, Schunk and NYPPEX, in a statement.
In May 2021, FINRA’s Department of Enforcement filed a complaint against NYPPEX, Allen and Schunk alleging “a pattern of misconduct” in the period after the firm was hit with a temporary restraining order by a New York court in December 2018, according to FINRA.
The injunction came after New York Attorney General Letitia James filed a suit against NYPPEX arguing, among other charges, that Allen had misappropriated money from a secondaries fund that he managed in order to keep NYPPEX afloat. Secondaries Investor first reported on the allegations in December 2019.
Following an 11-day hearing, the FINRA panel ruled in favour on all nine causes of action stated in the complaint, including:
- After the December 2018 court order, NYPPEX and Allen tried to raise $10 million by selling interests in holding company NYPPEX Holdings. They “committed securities fraud” by “intentionally or, at a minimum, recklessly” making material misstatements and omissions about the business’s valuation, financial condition, the New York court order and ongoing investigations into the business and affiliates.
- NYPPEX and Allen “failed to co-operate” with FINRA’s investigation and that this failure was “intentional” and part of a pattern of flouting the regulator’s requests for information.
- NYPPEX, Allen and Schunk submitted “a false and misleading response letter” to FINRA in which they attempted to deceive the regulator into believing they had complied with regulatory requirements when they had not.
- Allen remained “improperly” associated with NYPPEX even after being disqualified by the court order and engaged in securities fraud, making false and misleading statements to investors during a March 2019 webinar and on the firm’s website. He repeated those statements in an affidavit submitted to the New York court and to FINRA.
FINRA is overseen by the Securities and Exchange Commission. It regulates brokerage firms that do business with the public in the United States.
In a post-hearing brief seen by Secondaries Investor, NYPPEX’s lawyer argued that FINRA “failed to meet their burden” to establish that Allen or NYPPEX had intentionally committed securities fraud and that the temporary restraining order brought by the New York court did not actually disqualify him from working with NYPPEX.
The timeline of the appeal process is not yet known, Secondaries Investor understands.