The dos and don’ts of LPACs

Stephenson Harwood lawyers share their insight on successful LPAC operations; NY Attorney General obtains injunction against NYPEXX founder.

How to structure and operate an LPAC (and how not to): Stephenson Harwood lawyers Gabriel Boghossian and Sarah de Ste Croix give us some insight into best practices when forming and structuring an LPAC — a topic that’s become more and more important as LPACs gain rights and liabilities. “In calm waters it is clear why an organized and engaged LPAC is a benefit to both GPs and investors alike, allowing contentious issues to be resolved efficiently,” they write. But waters aren’t always calm, and as GP-led secondary sales and end-of-life liquidity offers become more frequent, so do conflicts of interest.

Allen injunction: The Office of the New York State Attorney General’s suit against NYPEXX chief Laurence Allen continues, with the AG having obtained an injunction to prevent Allen from managing the relevant fund. The judge had some pretty harsh words for Allen. However, he is claiming the ruling as a partial victory, saying it is “far less restrictive” than an earlier, ex parte order. He also was “pleased” that the court rejected the AG’s request to appoint a receiver for the fund, ACP X – though the reason the judge gave for rejecting it was that “there is a likelihood that the [AG] will establish entitlement to the relief it seeks, including money damages.”

I’ll very likely have more to report on this case – for previous articles, click here, here, and here – as the case progresses. I think it’s an important one, as the secondaries market is sometimes talked of as a “Wild West” frontier of private equity, and the case — whether or not the AG’s claims prove to be true — has some interesting potential consequences as a precedent.

The court is holding a conference this week to entertain Allen’s request to instruct the custodian, Royal Bank of Canada, to distribute publicly traded stocks to LPs in ACP X, including Allen and his wife.

Allen has circulated an LP affidavit, signed by some dozen investors, objecting to the AG’s actions and claiming they have harmed their investments. He has also sent the AG a warning that his lawyers regard the office’s statements regarding the alleged fraudulence of Allen’s behavior as defamatory and request that its press release be retracted and that it refrain from further public comment.

Email prepared by Graham Bippart