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Broker’s ‘Outright Fraud’ Prompts Judge to Bar Fund Access

Erik Larson

(Bloomberg) -- A private-equity fund manager was barred by a New York judge from accessing the remaining assets in a fund he allegedly used to steal millions of dollars from unsuspecting investors.

Evidence against Laurence G. Allen, the chief executive officer of Nyppex Holdings LLC in Rye Brook, New York, “revealed a shocking level of self-dealing, breaches of fiduciary duty, misappropriation of enormous sums” and “outright fraud,” State Supreme Court Justice Barry Ostrager said in a ruling this week.

New York Attorney General Letitia James sued Allen in December for allegedly engaging in securities fraud and misappropriating more than $13 million from clients between 2008 to 2018. She claims he used his ACP Partners X fund to funnel client money into a failing broker dealer he controlled.

In his Feb. 4 ruling, Ostrager criticized Allen’s “fanciful explanation” for the situation, particularly his claim in court that the disputed investment would produce a windfall because his broker dealer is worth $100 million.

Allen, who denies the allegations against him. said the attorney general and the judge don’t appear to understand how private equity partnerships work.

James and Ostrager “thus far, erroneously believe the general partner has inappropriately taken money from clients,” Allen said Friday in an email. “This is a mischaracterization of the facts.”

Allen’s lawyer, Leon Borstein, said in an email that the AG’s request to appoint a receiver for the fund was denied.

“We feel that after a full trial of the issues, Mr. Allen will ultimately prevail,” Borstein said.

Allen founded his 15-person private-equity company in 1998.

The judge’s ruling also noted that a whistle blower who went to the New York Attorney General’s Office for help had filed complaints with the U.S. Securities and Exchange Commission and the non-profit broker-dealer industry watchdog FINRA, but that neither agency took action.

“We are gratified that after hearing the evidence the court concluded that the only reasonable outcome was to deny defendants access to the remaining investor assets,” James said Friday in a statement.

Read More: N.Y. Claims Broker Dealer Stole From Private-Equity Clients

(Updates with comment from broker.)

To contact the reporter on this story: Erik Larson in New York at elarson4@bloomberg.net

To contact the editors responsible for this story: David Glovin at dglovin@bloomberg.net, Steve Stroth, Peter Blumberg

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