FINRA announced today that an extended hearing panel has expelled broker-dealer NYPPEX, LLC and barred its former CEO Laurence Allen for failing to respond in a timely and complete manner to FINRA requests for information and documents. The panel also found that NYPPEX and Allen engaged in securities fraud. In addition, the panel barred NYPPEX’s current CEO and Chief Compliance Officer Michael Schunk in any principal or supervisory capacity for his failure to supervise Allen, and suspended him for two years in all capacities for engaging in other misconduct—the maximum suspension under FINRA’s sanction guidelines.

In May 2021, FINRA’s Department of Enforcement filed a nine-cause complaint against NYPPEX, Allen, and Schunk alleging a pattern of misconduct that followed a temporary restraining order issued against Allen and others in December 2018 by a New York state court. That order—issued after the New York Attorney General (NYAG) alleged that Allen was engaging in “fraudulent and deceptive practices arising out of [Allen’s and others’] management and operation” of a private equity fund—preliminarily enjoined Allen from engaging in securities fraud and converting investor funds, among other activities.

Following an 11-day hearing, the panel ruled in favor of Enforcement on all nine causes of action of the complaint. Specifically, the panel found that, shortly after the December 2018 court order, NYPPEX and Allen launched an aggressive sales campaign to raise $10 million by selling interests in NYPPEX Holdings (NYPPEX’s parent company). The panel concluded that during the campaign, NYPPEX and Allen committed securities fraud when they “intentionally or, at a minimum, recklessly” made material misstatements and omissions to prospective investors about NYPPEX Holdings’ valuation and financial condition, the New York court’s order against Allen, and the ongoing investigation by the NYAG into Allen and NYPPEX-affiliated entities, among other matters.

The panel also found that NYPPEX and Allen failed to cooperate with FINRA’s investigation into their misconduct and that their “failure to comply completely was intentional, and part of a lengthy pattern throughout the investigation of flouting FINRA 8210 requests.” (FINRA Rule 8210 requires registered firms and their associated persons to provide information orally, in writing, or electronically and to testify under oath on any matter involved in a FINRA investigation, complaint, examination, or proceeding.) In addition, the panel found that NYPPEX, Allen, and Schunk submitted a false and misleading response letter to FINRA in which they “attempted to deceive [FINRA] into mistakenly believing, among other things, that they had complied with regulatory requirements” when they had not.

The panel also found that:

• Although the December 2018 New York court order statutorily disqualified Allen, he improperly remained associated with NYPPEX, and during that time engaged in securities fraud;
• NYPPEX and Allen made false and misleading statements to investors during a March 2019 “webinar” and on NYPPEX’s website. Allen repeated the false and misleading statements in an affidavit submitted to the New York court and to FINRA; and
• Schunk failed to reasonably supervise Allen, when he, “abdicated his supervisory responsibilities and rubber-stamped Allen’s misconduct.” This “lax approach to supervision…allowed Allen to act with impunity, leading to serious infractions of the federal securities laws.”

In expelling NYPPEX and barring Allen, the panel found that NYPPEX and Allen “are unfit to remain in the securities industry, and their continued presence would pose a substantial risk to the investing public.”

“FINRA relies on compliance with Rule 8210 to investigate misconduct and protect investors,” said Jessica Hopper, Executive Vice President and Head of FINRA’s Department of Enforcement. “The panel’s decision, which expels a member firm and bars its former CEO for violating Rule 8210 and failing to cooperate with FINRA’s investigation into their fraudulent misconduct, should remind the securities industry of the consequences for failing to provide timely, truthful, and complete responses during regulatory investigations.”

Respondents have appealed the hearing panel’s decision to FINRA’s National Adjudicatory Council (NAC). The sanction is stayed pending the outcome of the appeal.

About FINRA

FINRA is a not-for-profit organization dedicated to investor protection and market integrity. It regulates one critical part of the securities industry—brokerage firms doing business with the public in the United States. FINRA, overseen by the SEC, writes rules, examines for and enforces compliance with FINRA rules and federal securities laws, registers broker-dealer personnel and offers them education and training, and informs the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers a dispute resolution forum for investors and brokerage firms and their registered employees. For more information, visit www.finra.org.

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