NY AG invokes Martin Act in fraud suit against NYPPEX CEO

Laurence Allen denies charges of long-running fraud; not everyone automates waterfalls; making your service provider happy (or not).

Fraud claims: Yesterday we reported that the CEO of secondaries trading platform NYPPEX, Laurence Allen, was being sued by the New York State Office of the Attorney General. The 51-page lawsuit makes quite a few claims against Allen, his associated companies and his ACP X fund, dating back to the financial crisis when the AG claims NYPPEX was running into money troubles. Allen, whom we spoke to shortly after the suit was announced, vigorously denied the accuracy of the claims. This is a developing story, so check back in again periodically. Our sister publication Secondaries Investor will be following up with a Deep Dive next week.

For now, it is notable that the AG is making use of the Martin Act to file the claims. Many of you will no doubt be familiar with the controversial NY law, which vests the AG with broad powers to investigate and bring actions against violators – notably, it doesn’t require the state to prove a violating action was intentional. It also means witnesses issued with subpoenas – to attend court proceeedings or produce documents – do not have a right against self-incrimination. The AG ordered documents and communications from Royal Bank of Canada and Charles Schwab dating from 2018, with an emphasis on communications regarding fair value between them and Allen or his companies and funds.

The act was used, famously, by the NY AG to sue ExxonMobil over its alleged attempt to deceive investors over the impact of potential climate change regulations on its business.

Whether or not the AG’s claims are well founded will, of course, be a matter of discovery. There are a lot of claims in the suit, some of them very specific. Either way, many PE professionals won’t be pleased at this use of the Martin Act — probably the most notorious of the ‘blue sky laws‘ — in their industry.

Waterfalls: From our special report, this piece examines the automation of carried interest waterfalls. Yes, auditable Excel sheets are still produced even by firms that use a black-box model. But many firms, like ECI Partners, are for the moment relying on old, familiar Excel.

Service providers: And from our roundtable on fund services, there’s a companion piece to “How to annoy a CFO”. This time, however, it’s “How to please a service provider.”

Email prepared by Graham Bippart