Erez Law is currently investigating GPB Capital; a New York-based alternative asset management firm that offers exempt, private-placement securities.
These private-placement securities inherently have a high degree of risk due to their nature as unregistered securities offerings (and without regulatory oversight). According to their website, “GPB Capital is a New York-based alternative asset management firm that seeks to acquire income-producing private companies. GPB Capital provides their portfolio companies with the strategic planning, managerial insight, and capital needed to enable strong businesses to work towards the next level of growth and profitability.”
Investors seeking recourse for losses in GPB Capital Holdings are required to file their disputes in FINRA arbitration. Erez Law has been retained by many investors to file FINRA arbitration claims against brokerage firms to recover their losses. Our firm has been very successful in making recoveries for our clients throughout the United States.
At Erez Law, many of our clients come to us because of our specialization in recovering investment losses. We use considerable legal resources to help investors who trusted reckless and unethical financial advisors. We hold brokerage firms accountable for dishonest investment advisory practices, unsuitable recommendations, misrepresentation, and over-concentration in connection with their investment recommendations.
If you invested in GPB Capital Holdings without understanding the risks associated with your investment, you may be able to recoup your losses. Our team of financial securities attorneys has experience with FINRA arbitration, and we know how to hold brokerage firms and advisers liable for their indiscretions. Contact our GPB Capital Holdings fraud attorneys at (888) 840-1571 to get started.
The Concern with Private Placements Including GPB Capital Holdings
Companies traditionally offer securities as an initial public offering (IPO). However, some companies offer securities in the form of private placements through the sale of these securities to a relatively small number of investors.
Private placements are stocks, bonds, and securities that are sold directly to a private investor, rather than as part of a public offering and sold on the open market. It is common that investors that are targeted for private placement investments include wealthy retail investors, large banks, mutual funds, insurance companies, and pension funds.
The risk to investors of private placements, including GPB Capital Holdings, is the lack of or minimal regulatory requirements and standards that the companies involved must abide by. Thus, private placements do not have to be registered with the U.S. Securities and Exchange Commission (SEC).
After the stock market crash of 1929, the SEC instituted a law requiring companies to register securities with the SEC as well as providing a financial prospectus. When it comes to private placements, in many cases, investors are not provided with detailed financial information or a prospectus, which would help the investor make an informed investment decision.
However, through Regulation D of the Securities Act of 1933—which was put into place after the stock market crash to ensure that investors receive disclosures when purchasing securities—private offerings do not have to provide such financial information to potential and existing investors. Instead, investors of private placements receive a private placement memorandum (PPM), and they cannot be marketed at large to the general public.
Private placements can be used by a new company to raise money for its business or an established company to raise capital for a new or emerging technology, for instance. These private placement regulations allow companies to avoid the time and expense of registering with the SEC. Additionally, the issuer of the private placement can sell more complex securities to investors who meet the criteria set forth by the SEC, and understand the inherent risks and rewards of such investments. The company can also remain privately owned and avoid filing annual disclosures with the SEC.
While investors of private placement bonds expect a higher interest rate compared to that of a publicly traded security, private placements come with inherent risks to investors. Private securities also contain the risk of not obtaining a credit rating.
GPB Capital Holdings Decline
GPB Capital Holdings was launched in 2013, and since that time it raised $1.8 billion from roughly 4,000 investors through private placements sold by brokerage firms across the United States. GPB Capital Holdings launched with a focus on buying auto dealerships and then branched out to include investments in the waste management industry, as well as middle-market lending.
The investments offered by GPB Capital Holdings were high risk to investors and offered high commissions of nearly as much as 9.3% to the brokers that sold the private placements. The illiquid, high-commission alternative investments posed a significant risk to investors.
In June 2019, InvestmentNews reported that GPB sent a document to broker-dealers stating that the firm raised $1.8 billion from wealthy advisors, and advisors collectively were paid $167 million in fees and commissions (9.3% commission). Additionally, the firm estimated the value of its seven funds to be $1.1 billion, which is just 61% of the initial capital raised, and a decline of nearly 40% of its initial value.
GPB’s Armada Waste Management raised $163.4 million, however as of June 2019, it has an estimated value of $53.4 million.
GPB Capital Holdings manages the following private placements:
- GPB Automotive Portfolio, LP
- GPB Cold Storage LP
- GPB Holdings, LP
- GPB Holdings II, LP
- GPB Holdings III, LP
- GPB Holdings Qualified, LP
- GPB NYC Development, LP
- GPB Waste Management Fund, LP
GPB Capital Holdings’ two most significant investment funds are GPB Holdings II and GPB Automotive Portfolio. GPB Holdings II and GPB Automotive Portfolio, LP have collectively paid brokers $100.1 million in commissions at a rate of 7.9%. Together, the investment funds have raised $1.27 billion ($645.8 million for GPB Holdings II and $622.1 million for GPB Automotive Portfolio), making up the majority of GPB Capital Holdings’ portfolio.
According to the SEC, a private company that has more than $10 million in assets and 2,000 individual investors must file financial statements with the SEC within 120 days (four months) after the end of its fiscal year. April 2018 was GPB Capital Holdings’ deadline and the company missed sending the SEC financial reports that were due, according to InvestmentNews.
GPB’s private placements are on file with the SEC. The two largest, GPB Automotive Portfolio and GPB Holdings II, both had more than 3,000 investors in May 2017 and had raised hundreds of millions of dollars by that time, according to SEC filings. Both now have more than double that number of investors.
- In August 2018, GPB Capital Holdings ceased raising capital from investors.
- In September 2018, Massachusetts Secretary of the Commonwealth William Galvin announced an investigation into 63 broker-dealer firms that sold private placements from GPB Capital Holdings.
- Crowe LLP, the firm’s auditor, resigned in November 2018, according to InvestmentNews. “Crowe notified GPB Capital that it elected to resign as the auditor for the partnership… due to perceived risks that Crowe determined fell outside of their internal risk tolerance parameters.” GPB Capital Holdings replaced Crowe LLP with EisnerAmper LLP as their auditor. According to InvestmentNews, a change in auditor or accounting firm can be perceived as a red flag by many investors.
- In March 2019, GPB Capital Holdings sent a letter to investors to inform them of a visit by the Federal Bureau of Investigation (FBI) and officials from the New York City Business Integrity Commission entered the firm’s Manhattan offices in February 2019, according to the DIwire. According to the letter, “For many months we have been taking steps to strengthen our business including enhancing our oversight and auditing practices. Recently, we have been cooperating with inquiries from various authorities and have been producing requested documents on a rolling basis. On February 28, 2019, authorities came to GPB Capital’s New York offices and collected material. We believe the visit, while unscheduled, was a continuation of this process and we will remain cooperative with any inquiries. Going forward, we are still laser-focused on completing our audits, overseeing our portfolio companies, and creating value for you, our investors. We are confident that as we move forward our portfolio companies are stable and well-positioned for the future.”
The SEC and FINRA are investigating GPB Capital Holdings and the accuracy of disclosures made to investors, the performance of funds, and the distribution of capital to investors.
Financial advisors across the country from more than 80 brokerage firms are alleged to recommend unsuitable investments in GPB Capital Holdings, including Royal Alliance Associates Inc., Sagepoint Financial Inc., FSC Securities Corp., Woodbury Financial Services Inc., Newbridge Securities, Ladenburg Thalman, Hightower Securities, and other broker firms.
GPB Capital Holdings Losses
According to the SEC, GPB Automotive Portfolio raised $622.1 million from wealthy investors since GPB Capital Holdings’ inception in 2013. The minimum investment in the GPB Automotive Portfolio was $100,000. Since 2015, GPB Holdings II raised $645.8 million. Together, GPB Holdings II and GPB Automotive Portfolio have paid brokers $100.1 million in commissions at a rate of 7.9%.
- In April 2018, GPB Capital Holdings missed a deadline to report and make publicly available its financial information about GPB Holdings II and GPB Automotive Portfolio.
- In June 2019, GPB Capital Holdings reported losses in the value of two of its investment funds: GPB Holdings II and GPB Automotive Portfolio. GPB Holdings II saw a decline in value of 25.4% and GPB Automotive Portfolio has decreased by 39%. GPB Holdings II and GPB Automotive Portfolio make up the majority of GPB Capital Holdings’ portfolio, raising $1.27 billion from investors.
GPB Capital Holdings’ other funds also reported declines in estimated value of between 25% and 73%.
According to an article on InvestmentNews, “the company noted that if distributions were added to the fair market value, investors did better. The distributions in the GPB funds are not returns on the investments but a return of a small piece of investors’ initial capital. Adding in distributions, investors in GPB Holdings II and GPB Automotive Portfolio saw decreases in their investments, respectively, of roughly 13% and 25%, according to the company.”
It is alleged that GPB Capital Holdings issued more than $163 million in securities in Armada Waste Management LP. Unfortunately for investors, it is alleged that the fund is now valued at just $53 million, an almost 70% reduction in value.
Former Business Partner Files Case Against GPB Capital Holdings for Ponzi Scheme Fraud
In July 2019, it was reported that David Rosenberg, a former business partner and chief executive of Prime Automotive Group, filed a case against GPB Capital Holdings. The complaint alleged severe financial misconduct. It also alleged that GPB Capital Holdings tried to push Rosenberg out after he complained to the SEC. Additionally, Rosenberg allegedly accused GPB Capital Holdings of running a Ponzi-like scheme, in which it used money from investors to prop up the performance of the auto dealerships it owns, as well as to finance payments to other investors, according to an article in the Boston Globe on June 2019. It is reported that Rosenberg sold a majority stake in Prime for $235 million to GPB Capital Holdings in 2017.
A Ponzi scheme is a fraudulent investing scam that promises high rates of return with little risk to investors. The Ponzi scheme generates returns for early investors by acquiring new investors. This is similar to a pyramid scheme in that both are based on using new investors’ funds to pay the earlier backers. A Ponzi scheme is a form of fraud in which belief in the success of a non-existent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors. This gives the appearance of earnings and profits where there are none.
According to an article in InvestmentNews, Rosenberg “appropriately reported evidence of financial misconduct within GPB Capital that he and his team uncovered during the course of their duties… GPB leadership not only ignored Mr. Rosenberg’s call for immediate corrective steps, but they also took retaliatory action by failing to make a contractually required payment to him.”
Recovering Losses Through FINRA Arbitrations
Investors in the United States are filing FINRA arbitration claims against their brokerage firms for investments made in GPB Capital Holdings on the advice of their brokers. Many of these investors were not adequately warned about the high-risk nature of the investments, and have suffered serious losses as a result. Investors may have a claim against the brokerage firm based on misrepresentation, unsuitability, breach of fiduciary duty, and state and federal securities laws.
A broker must have reasonable grounds for each recommendation made to investors considering such factors as the customer’s other securities holdings, financial situation, and risk tolerance. In addition, before a financial advisor recommends a security to his customers, the financial advisor must conduct due diligence, investigating the facts surrounding the security, to confirm that it is suitable for the customer. The suitability of an investment for a particular individual is at the center of the investment process and one of the key duties owed by a broker to the customer. A firm may be held liable for its broker’s failure to recommend suitable investments to its customers.
In addition, pursuant to FINRA Rules, member firms are responsible for supervising a broker’s activities during the time the broker is registered with the firm. Therefore, the brokerage firm may be liable for investment or other losses suffered by financial advisors who worked for the firm.
Accredited Investors Were Sold GPB Capital Holdings
Private placements, including GPB Capital Holdings, can only be sold to accredited investors. An accredited investor is a person or a business entity who is allowed to deal in securities that may not be registered with financial authorities. To be able to invest in private placements, they must satisfy at least one of the following requirements including income, net worth, asset size, governance status, or professional experience. The investors must be financially sophisticated and have a reduced need for the protection provided by regulatory disclosure filings. Accredited investors include natural high-net-worth individuals, banks, insurance companies, brokers, and trusts, according to Investopedia.
Erez Law is currently investigating the following brokers who have allegedly sold GPB Capital Holdings, among many others:
- Matthew Crafa of Royal Alliance Associates in Garden City, New York
- Oscar Francis of MML Investors Services, LLC in Ft. Lauderdale, Florida
- Kevin Canterbury of Coastal Equities, Inc. in Scottsdale, Arizona
- Michael Packman of Axiom Capital Management in Westbury, New York
GPB Capital Holdings Fraud
Financial advisors across the country from more than 80 brokerage firms are alleged to recommend unsuitable investments in GPB Capital Holdings.
The brokerage firms include:
- Accelerated Capital Group
- Advisory Group Equity Services, Ltd
- Aegis Capital Corp
- Aeon Capital, Inc.
- American Capital Partners, LLC
- Arete Wealth Management, LLC
- Arkadios Capital
- Ascendant Alternative Strategies, LLC
- Ausdal Financial Partners, Inc.
- Avere Financial Group, LLC
- Axiom Capital Management, Inc.
- BCG Securities, Inc.
- Benjamin & Jerold Brokerage I, LLC
- Cabot Lodge Securities, LLC
- Calton & Associates, Inc.
- Cape Securities, Inc.
- Capital Financial Services, Inc.
- Capital Investment Group, Inc.
- Cascade Financial Management, Inc.
- Center Street Securities, Inc.
- Coastal Equities, Inc.
- Colorado Financial Service Corp.
- Concorde Investment Services, LLC
- Crown Capital Securities, L.P.
- Crystal Bay Securities, Inc.
- David A. Noyes & Company
- Dawson James Securities, Inc.
- Dempsey Lord Smith, LLC
- Detalus Securities, LLC
- DFPG Investments, Inc.
- Dinosaur Financial Group, LLC
- Emerson Equity LLC
- Financial West Group
- FSC Securities Corp.
- Geneos Wealth Management, Inc.
- Great Point Capital, LLC
- H. Hill Securities, LLLP
- Hightower Securities, LLC
- IBN Financial Services, Inc.
- Innovation Partners LLC
- International Assets Advisory, LLC
- Investment Architects, Inc.
- Kalos Capital, Inc.
- Kingsbury Capital, Inc.
- Ladenburg Thalman
- Landolt Securities, Inc.
- Lewis Financial Group, L.C.
- Lion Street Financial, LLC
- Lowell & Company, Inc.
- Madison Avenue Securities, Inc.
- McDonald Partners LLC
- McNally Financial Services Corp.
- Moloney Securities Co., Inc.
- Money Concepts Capital Corp.
- MSC – BD LLC
- National Securities Corp.
- Newbridge Securities
- Newbridge Securities Corp.
- Orchard Securities, LLC
- Pariter Securities, LLC
- Partier Securities, LLC
- ProEquities, Inc.
- Private Client Services, LLC
- Purshe Kaplan Sterling Investments
- Royal Alliance Associates, Inc.
- Sagepoint Financial, Inc.
- Sandlapper Securities, LLC
- SCF Securities, Inc.
- Sentinus Securities, LLC
- Silber Bennett Financial, Inc.
- Stephen A. Kohn & Associates, Ltd.
- Triad Advisors, LLC
- Uhlmann Price Securities, LLC
- United Planners’ Financial Services of America, LP
- Vanderbilt Securities, LLC
- Vestech Securities, Inc.
- Western International Securities, Inc.
- Westpark Capital, Inc.
- Whitehall-Parker Securities, Inc.
- Wilmington Capital Securities, LLC
- Windsor Street Capital, LP
- Woodbury Financial Services, Inc.
Contact Our Nationwide Securities Lawyers To Fight For Your GPB Capital Holdings Losses
If you have experienced investment losses or financial irregularities as a result of GPB Capital Holdings, we are here to help. We are not afraid of taking on corrupt firms, and we can and will combat some of the largest brokerage firms in the United States. Count on our experience to successfully take you through the FINRA arbitration process.
Please call us at (888) 840-1571 for a free consultation or complete our contact form to investigate your recourse for losses in GPB Capital Holdings investments. Erez Law is a nationally recognized law firm representing individuals, trusts, corporations, and institutions in claims against brokerage firms, banks, and insurance companies. We represent national GPB Capital Holdings Victims; including Arizona, California, Florida, Illinois, New Jersey, New York, Pennsylvania, and Texas.