The lawyer for Laurence Allen, who is being accused of a long-running fraud by the New York Attorney General’s Office, plans to argue that an injunction against him and his companies, as well as the appointment of a receiver for relevant assets, should not be signed by a judge.
Allen, who is being represented by Leon Borstein of the law firm Borstein Turkel, denied to Private Fund CFO on Thursday all of the allegations made against him, including one asserting that there was no investment committee independently evaluating his investment decisions.
On Friday Borstein told Private Funds CFO he plans to argue that the vast majority of LPs in Allen’s ACP X fund, which is a focus of the suit, are not New York residents, and that as yet, there have been no affidavits filed by LPs claiming they believe they have been defrauded.
Borstein said he will be receiving full details about the 75-80 LPs in the fund on Friday, but that his preliminary investigation indicates only about four LPs reside in New York state. “I don’t know that the judge will sign the order to show cause when he finds that out,” Borstein said.
A meeting at a court with representative counsel is to take place on Monday, December 9, to schedule brief and hearing dates.
Although Borstein hasn’t read the entire 229 paragraph complaint yet, he noted the suit, and the 2018 injunction freezing ACP X assets that the AG’s office filed, appear to have originated from a complaint made by an individual LP who, as the AG’s lawsuit claims, wanted Allen to buy it out early from the fund, threatening to file a claim of mismanagement if this didn’t happen. According to the lawsuit, two other investors sought to be redeemed in 2017, but Allen refused, saying that ACP wasn’t a hedge fund, and that it would have to offer the same deal to all LPs, allegedly not mentioning the previous buyout.
“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.” The investor was bought out, “ultimately,” said Borstein. The AG’s lawsuit indicates the investor sought to be bought out in 2014, with Allen buying the position out in mid-2014 for about $712,000; the AG’s office says these funds were wired from an ACP bank account directly to the LP.
The AG’s office is requesting an injunction to continue restrictions made in a December 2018 order that froze ACP X assets, as well as to appoint a receiver for them. The AG’s office did not respond to a request for comment by press time.
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