Initiated By
FINRA
Allegations
Allen was named a respondent in a FINRA complaint alleging that while statutorily disqualified, he continued to associate with the firm and the firm and its CCO, allowed Allen to continue to associate with it until over a year later when the firm filed an MC-400 application seeking FINRA's approval for Allen's continued association. The complaint alleges that the Office of the New York Attorney General (NYAG) secured an order, a disqualifying event for Allen, from the Supreme Court of the State of New York preliminarily enjoining and restraining Allen and the firm's parent company for, among other things, engaging in securities fraud, violating New York's securities laws, and converting or otherwise disposing of or transferring funds from a private equity fund controlled by Allen. The complaint also alleges that undeterred by the NYAG's investigation and the preliminary injunctions entered against himself and the parent company, Allen devised and orchestrated an aggressive sales campaign to raise $10 million through the sale of securities in the parent company. While soliciting these investments, the firm and Allen intentionally or recklessly made a series of material misrepresentations and omissions of material fact to prospective investors concerning, among other things, the valuation of the parent company, its financial condition, and its management team. The firm and Allen also failed to disclose to prospective investors the ongoing investigation into Allen's and the parent company's alleged fraudulent activity and the order that preliminarily enjoined both of them. The complaint further alleges that the statements made by the firm and Allen in connection with their solicitation efforts for the parent company were also not in compliance with the standards for communications set forth in FINRA Rule 2210. These communications were not fair and balanced, omitted material facts, contained false or misleading statements, and failed to disclose the risks and potential benefits in a balanced way. In addition, the complaint alleges that the firm and Allen made false or misleading statements on the firm's website about FINRA's 2018 examination of the firm. The website statements included assertions that the NYAG's allegations were in conflict with facts concluded by FINRA and that FINRA had found no violations during its examination. In fact, FINRA's 2018 examination had resulted in an informal disciplinary action based on findings that the firm had violated multiple FINRA rules and provisions of the Securities Exchange Act of 1934. Moreover, nothing about FINRA's exam findings conflicted with the NYAG's allegations. The website also contained statements about Allen's and others' so-called exemplary regulatory compliance that were false or at least exaggerated, and which impermissibly implied FINRA's endorsement. Moreover, the complaint alleges that Allen made similar false or misleading statements about FINRA's 2018 examination of the firm in an affidavit, which he caused to be filed in New York state court. Allen later submitted the same false or misleading affidavit to FINRA as part of a belated request to continue his association with the firm, despite his statutory disqualification. Furthermore, the complaint alleges that the firm, Allen, and the CCO provided false or misleading information to FINRA about the statements posted on the firm's website. The complaint alleges that the firm and Allen failed to respond, or failed to timely and completely respond, to FINRA's requests for information and documents, including requests for bank statements, which would have shown whether any investors bought shares of the parent company following the firm's and Allen's fraudulent solicitations.
Resolution
Pending Appeal
Bar
Bar (Permanent)
Registration Capacities Affected
All capacities
Duration
Indefinite
Start Date
4/8/2024
Regulator Statement
Hearing Panel decision rendered 8/26/22 wherein Allen is barred from association with any FINRA member in all capacities and ordered to pay, jointly and severally, hearing costs in the amount of $28,054.03. In light of the bar, no further sanctions are imposed. The sanction is based on findings that Allen continued to associate with his firm, NYPPEX, despite him being statutorily disqualified and without filing a MC-400 seeking FINRA's approval for his association. The findings stated that the Supreme Court of the State of NY issued an Order that enjoined and restrained Allen. The findings also stated that Allen made misrepresentations and omissions of material fact to prospective investors in connection with a securities offering. In connection with an aggressive sales campaign Allen engineered to raise $10 million through the sale of NYPPEX's parent company's securities, Allen allegedly made misleading statements and omissions to prospective investors about, among other things, the parent company's valuation, its financial condition, its management team and failed to disclose the ongoing investigation and the order. FINRA found that NYPPEX and Allen violated FINRA's advertising standards in communications to prospective investors and in material posted on NYPPEX's website. The misrepresentations and omissions concerned, among other things, the parent company's valuation and its financial condition. The false or misleading statements on NYPPEX's website were about a FINRA examination of NYPPEX, implying that it endorsed its business practices. The website statements included assertions that the NYAG's allegations conflicted with facts concluded by FINRA and that operating expenses between and among firm-affiliated entities were allocated under NYPPEX's affiliate service agreement, which has been reviewed and approved by FINRA throughout its periodic examinations of the parent company. In addition, FINRA found that Allen submitted to the NY court and FINRA a signed affidavit containing false and misleading statements and that NYPPEX submitted a response to FINRA that contained false or misleading statements and Allen and the CCO co-signed the response. FINRA also found that Allen made untimely and incomplete responses to requests for information and documents. The documents and information Allen did produce were untimely. On 9/19/22, Allen appealed the decision to the NAC.
On 10/31/22, the OHO issued an Order granting FINRA's request that Allen be prohibited from offering, or participating in, private placements during the pendency of the appeal; is subject to a plan of heightened supervision that shall become effective 10 days after the date of this Order; and shall complete 40 hours of continuing education within 90 days after the date of this Order. All other conditions and restrictions imposed by this Order are effective immediately.
On 4/8/24, the NAC rendered a decision modifying the findings and sanctions imposed by OHO. The NAC affirmed the findings that Allen continued to associate with NYPPEX after becoming subject to a statutory disqualification, and published a Press Release that implied FINRA's endorsement of NYPPEX's business practices. The NAC affirmed the bar imposed. In light of the bar, the NAC does not impose sanctions for any other violation. The NAC affirmed, in part, and modified the finding of violation that Allen provided untimely and incomplete responses to 8210 requests. The NAC reversed the findings that: Allen made material omissions in offers of securities; made false or misleading statements in the Press Release; made false and misleading statements in an affidavit that was filed with a NY state court and which NYPPEX later submitted to FINRA; and made false or misleading statements in response to an 8210 request.
On 05/07/2024, Allen appealed the decision to the SEC. The sanction, except for the bar, is not in effect pending review.
Broker Comment
Continued from Section 7: From the time the order was issued, Schunk knew that the NY Attorney General had alleged that Allen had engaged in widespread securities fraud and misappropriation of investor funds, and yet he failed to take reasonable steps to ensure that Allen's and the firm's statements to firm customers, prospective investors, the public, the New York state court, and FINRA complied with the federal securities laws and FINRA's rules. The complaint alleges that the firm, Allen, and Schunk provided false or misleading information to FINRA about the statements posted on the firm's website. The complaint also alleges that the firm and Allen failed to respond, or failed to timely and completely respond, to FINRA's requests for information and documents, including requests for bank statements, which would have shown whether any investors bought shares of the parent company following the firm's and Allen's fraudulent solicitations.