Erez Law investigating Kalos Capital, Inc. Broker Darren Kubiak for GPB Losses
Posted on Monday, October 21st, 2019 at 3:28 pm
Erez Law is currently investigating Kalos Capital, Inc. broker Darren Kubiak (CRD# 1239086) regarding leveraged and inverse exchange traded funds (LIETFs) as well as investment losses due to unsuitable GPB Capital Holdings recommendations.
Kubiak has been registered with Kalos Capital, Inc. in Alpharetta, Georgia since 2007.
In October 2019, Kubiak was sanctioned to a $5,000 civil and administrative penalty and was suspended for three months. Kubiak “consented to the sanctions and to the entry of findings that he recommended the purchase of leveraged and inverse exchange traded funds (LIETFs) to customers without having a sufficient understanding of the risks and features associated with the LIETFs. The findings stated that Kubiak thereby failed to have a reasonable basis to make these recommendations. Kubiak recommended these customers purchase LIETFs, which the customers then held for an average of 722 days. These extended holding periods caused Kubiak’s customers to incur approximately $98,000 in losses. Kubiak failed to perform reasonable due diligence. Moreover, Kubiak did not understand that LIETFs are generally expected to lose value over time and that losses are compounded because of how the LIETFs’ valuations are reset each day.”
GPB Capital Holdings is a New York-based investment firm that offers exempt, private-placement securities that inherently have a high degree of risk due to their nature as unregistered securities offerings (and without regulatory oversight). The investment firm raised $1.8 billion from investors through private placements that invested in automotive dealerships, the waste management industry, and middle market lending. These investments were high risk and high commission (nearly 8%) private placements.
GPB Capital Holdings was launched in 2013 with a focus on buying auto dealerships. According to the SEC, GPB Automotive Portfolio raised $622.1 million from wealthy investors since 2013, and the minimum investment in GPB Automotive Portfolio was $100,000. GPB Holdings II raised $645.8 million since 2015. GPB Holdings II and GPB Automotive Portfolio together have paid brokers $100.1 million in commissions at a rate of 7.9%.
As of July 2019, GPB Capital Holdings is more than a year past its deadline to make public its audited financial statements for two of its largest funds. 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 have 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 manages the following nine 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 other funds also reported declines in estimated value of 25% to 73%.
According to an article in 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.”
Kubiak has been the subject of three customer complaints in 2019, according to his CRD report:
September 2019. “Unsuitable recommendations, Negligence and breach of fiduciary duty, Negligent supervision, Breach of contract.” The customer is seeking $500,000 in damages and the case is currently pending.
July 2019. “unsuitable investments; sales commenced in 2012 and continued for approximately 5 years.” The customer is seeking $495,368.50 in damages and the case is currently pending.
June 2019. “Between 2014 and 2018, claimants invested about $170,000 in GPB Funds which they claim were unsuitable despite providing suitability info that indicated otherwise.” The customer is seeking $500,000 in damages and the case is currently pending.
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, Kalos Capital, Inc. may be liable for investment or other losses suffered by Kubiak’s customers.
Erez Law represents investors in the United States for claims against brokers and brokerage firms for wrongdoing. If and have experienced investment losses, please call us at 888-840-1571 or complete our contact form for a free consultation. Erez Law is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies on a contingency fee basis.