GPB Capital Holdings Investment Losses
Posted on Saturday, July 20th, 2019 at 8:03 pm
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 over $1.7 billion from more than 17,000 investors (approximately 4,000 of which are seniors) through private placements that invested in automotive dealerships, the waste management industry, and middle-market lending. These investments were high-risk and high-commission private placements. GPB Capital paid 8% annualized distributions as well as periodic “special distributions” ranging from 0.5 to 3%.
In February 2021, the Securities and Exchange Commission (SEC) charged David Gentile, the owner and CEO of GPB Capital, Jeffry Schneider, the owner of GPB Capital’s placement agent Ascendant Capital (which marketed GPB Capital’s investments), and Jeffrey Lash, a former managing partner at GPB Capital, and their affiliated entities with running a Ponzi-like scheme. According to the SEC’s complaint, Gentile, Schneider, and Ascendant Alternative Strategies told investors that the annualized distribution payments were paid with monies generated by GPB Capital’s portfolio companies; however, according to the SEC complaint, GPB Capital used investor money to pay distribution payments. Additionally, the SEC found that GPB Capital and Gentile, with assistance from Lash, also allegedly manipulated the financial statements of certain limited partnership funds managed by GPB Capital to give the false appearance that the funds’ income was closer to generating sufficient income to cover the distribution payments than it actually was. The SEC’s complaint also alleges that GPB Capital and Ascendant Capital, “made misrepresentations to investors about millions of dollars in fees and other compensation received by Gentile and Schneider. As alleged, the fraudulent scheme continued for more than four years in part because GPB Capital kept investors in the dark about the limited partnership funds’ true financial condition, failing to deliver audited financial statements and register two of its funds with the SEC.”
The SEC’s complaint charged Gentile, Schneider, GPB Capital, Ascendant Alternative Strategies, and Ascendant Capital with violating the antifraud provisions; Lash was charged with aiding and abetting certain of those violations. The complaint also charges GPB Capital and Gentile with violating the antifraud provisions. The SEC also charged GPB Capital with violating the whistleblower protection laws.
According to the SEC, “Investors in the Funds paid substantial fees and expenses, specifically, 11% in selling fees (i.e., commissions, due diligence fees, placement fees, wholesaling fees), and annual fees including a 2% management fee, 1.25% in organizational expenses, a 1.75% – 2.875% acquisition fee, and an undisclosed amount of partnership expenses.”
In May 2020, an amended class action complaint, Kinnie Ma IRA v. Ascendant Capital, alleged conflicts of interest of two owners of the GPB Capital Holdings businesses, Gentile and Schneider. Not revealed to investors, Schneider was the owner of GPB Capital Holdings as well as one of the owners of Ascendant Capital, a broker-dealer that contacted other brokers to sell the private placements. According to the complaint, “Ascendant Capital, GPB’s primary distribution agent, and GPB itself, were both controlled by their principals, David Gentile and Jeffry Schneider… However, neither GPB, nor Ascendant, nor their principals made disclosure of this co-ownership and common control to investors in the offering materials for the Securities.” The complaint alleges that the lack of disclosure about these conflicts of interest renders the offerings illegal.
In February 2020, Volkswagen of America Inc. filed a complaint against GPB Capital Holdings alleging that GPB Capital Holdings broke an agreement with the car manufacturer. In July 2019, David Rosenberg, a former business partner and chief executive of Prime Automotive Group, sued GPB Capital Holdings and complained to the SEC, alleging that the firm engaged in serious financial misconduct. According to the amended complaint, GPB Capital Holdings removed Rosenberg as the head of three auto dealerships; after this time, Volkswagen told GPB Capital Holdings to divest from the dealerships. It was a part of GPB Capital Holdings’ business strategy to sell private partnerships to wealthy investors by way of independent broker-dealers. GPB Capital Holdings was then intended to use the proceeds to purchase auto dealerships and other waste management businesses, providing high returns for investors. However, as with private placements, these investments generated high commissions for the brokers that recommended them, as well as additional fees and costs that investors were responsible to pay.
In January 2020, GPB Capital Holdings informed investors that they would not be able to provide tax documents (Schedule K-1) by April 15 to at least 6,353 investors or limited partners of one of its largest funds, GPB Automotive Portfolio. A Schedule K-1 is a document that owners of limited partnerships provide annually. The company stated that it hopes to have the forms by July 2020, according to an article in Investment News.
In November 2019, GPB Capital Holdings wrote a letter to investors that it was not going to meet its deadline of December 31, 2019 to supply investors with audited financial reports of two of its funds. Investors have been waiting since at least April 2018 to receive these reports from GPB Capital Holdings. According to the letter, in light of his indictment of GPB Capital’s former Chief Compliance Officer Michael Cohn, GPB Capital Holdings has engaged a third-party law firm to perform an independent investigation of the allegations related to Michael Cohn’s hiring and employment at GPB Capital Holdings. “Given this new investigation and other matters, the Partnership’s auditor has decided to suspend work on outstanding financial statement audits. In addition, the Audit Committee has elected to resign effective upon the earlier date of the completion of the Rosenberg investigation or by November 27, 2019. Pending the results of the Cohn and Rosenberg investigations, as well as the reconstitution of the Audit Committee, the Partnership’s auditor will provide further guidance. As a result of these recent developments, we will not be able to meet our previously communicated target completion date of year-end 2019,” according to the letter.
In October 2019, the United States Attorney for the Eastern District of New York charged Cohn with obstruction of justice, unauthorized computer access, and unauthorized disclosure of confidential information. Cohn was released on a $250,000 bond. Cohn previously worked as a Securities Compliance Examiner and Industry Specialist in the SEC’s Enforcement Division, where he assisted investigations into violations of securities laws. In October 2018, Cohn left the agency to join GPB Capital Holdings. However before he left the SEC, it is alleged that he retrieved information from databases that he was not authorized to access, including information about the GPB Capital Holdings investigation.
In August 2019, it was reported that a group of investors GPB Capital Holdings faced a potential class-action lawsuit from disgruntled investors seeking financial information about its funds. The complaint alleged that GPB Capital Holdings breached its fiduciary duty because it has not given its investors annual audited financial statements.
In July 2019, it was reported that Rosenberg filed a case against the firm, alleging serious financial misconduct. The report alleged that GPB Capital Holdings tried to push Rosenberg out after he complained to the Securities and Exchange Commission (SEC). It is alleged that Rosenberg accused GPB Capital Holdings of running a Ponzi-like scheme, according to an article in the Boston Globe. It is reported that Rosenberg sold a majority stake in Prime for $235 million to GPB Capital Holdings in 2017.
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, they took retaliatory action by failing to make a contractually required payment to him.”
As of July 2019, GPB Capital Holdings was more than a year past its deadline to provide investors and the public with 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 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 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 an 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.”
At the end of April 2018, the company missed a deadline to report financial information about GPB Holdings II and GPB Automotive Portfolio.
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.
In February 2019, the FBI and officials from the New York City Business Integrity Commission entered the firm’s Manhattan offices.
In September 2018, Massachusetts Secretary of the Commonwealth William Galvin announced an investigation into 63 broker-dealer firms that sold private placements from GPB.
In November 2018, Crowe LLP, the firm’s auditor, resigned.
According to public records, in August 2018, GPB Capital Holdings ceased raising capital from investors. GPB Capital Holdings missed sending the SEC financial reports on April 30, 2018 and is now straightening out the accounting for two of its larger funds – GPB Holdings II and GPB Automotive Portfolio.
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%.
It is alleged that more than 60 independent broker-dealers have sold GPB Capital Holdings funds, including:
- Advisory Group Equity Services Ltd.
- Ameriprise Financial Services, Inc.
- Axiom Capital Management
- Capital Financial Services, Inc.
- Capital Investment Group, Inc.
- Capital Securities, L.P.
- Coastal Equities, Inc.
- Concorde Investment Services, LLC
- Creative Wealth Advisors
- Crown Capital Securities, L.P.
- Dempsey Lord Smith, LLC
- FSC Securities Corp.
- Hightower Securities, LLC
- Kalos Capital, Inc.
- Madison Avenue Securities, LLC
- Moloney Securities Co., Inc.
- MML Investors Services, LLC
- Newbridge Securities Corporation
- Royal Alliance Associates Inc.
- Sagepoint Financial Inc.
- Triad Advisors LLC
- Uhlmann Price Securities, LLC
- Woodbury Financial Services Inc.
It is alleged that the following brokers, among many others, recommended their clients invest in GPB Capital Holdings:
- Advisory Group Equity Services Ltd. broker Ronald Birnbaum (CRD# 2382580)
- Capital Investment Group, Inc. broker John Culp (CRD# 2636902)
- Coastal Equities, Inc. broker Kevin Canterbury (CRD# 4939385)
- Coastal Equities, Inc. broker Luke Johnson (CRD# 3257008)
- Concorde Investment Services, LLC broker Robert Smith (CRD# 1412333)
- Crown Capital Securities, L.P. broker Hugh Barndollar (Hobby Barndollar) (CRD# 3027317)
- Dempsey Lord Smith, LLC broker Arni Diamond (CRD# 2667392)
- Former Ameriprise Financial Services, Inc. and Kalos Capital, Inc. broker Gary Imel (CRD# 254765)
- Former Axiom Capital Management broker Michael Packman (CRD# 2518120)
- Former Capital Financial Services, Inc. broker Sean Kelly (CRD# 2294170)
- Former Hightower Securities, LLC broker Charles Holt (CRD# 1943440)
- Former Kalos Capital, Inc. broker Daniel Saur (CRD# 2424518)
- Former Madison Avenue Securities, LLC broker Jeffrey Dixson (CRD# 4166311)
- Former MML Investors Services, LLC broker Oscar Francis (CRD# 5094722)
- Former National Securities Corporation broker Michael Fasciglione (CRD# 1806486)
- Former Triad Advisors, Inc. broker David Atlee (CRD# 5565960)
- Former Triad Advisors LLC broker Michael (Mike) Sievert (CRD# 2127441)
- Hightower Securities, LLC broker Henry Crosby (CRD# 4897355)
- Hightower Securities, LLC broker John Gibson (CRD# 5925373)
- Kalos Capital, Inc. broker Darren Kubiak (CRD# 1239086)
- Kalos Capital, Inc. broker David Sweat (CRD# 5502379)
- Kalos Capital, Inc. broker Eric Weschke (CRD# 2486324)
- Kalos Capital, Inc. broker Frederick Baerenz (CRD# 2388453)
- Moloney Securities Co., Inc. broker Jeffrey Cohen (CRD# 2528929)
- National Securities Corp. broker Kevin Dziubela (CRD# 3208688)
- National Securities Corporation broker Christopher Russo (CRD# 2744913)
- Newbridge Securities Corporation broker Scott Brooks (CRD# 3235252)
- Pruco Securities, LLC broker Martin Proshek (CRD# 2401071)
- Royal Alliance Associates, Inc. broker Matthew Crafa (CRD# 3114277)
- Uhlmann Price Securities, LLC broker John Hoidas (CRD# 1937971)
- Woodbury Financial Services, Inc. broker Daryl Serizawa (CRD# 2293939)
- Woodbury Financial Services, Inc. broker Phillip Cartwright (CRD# 4287303)
It is alleged that brokerage firms that sold GPB Capital Holdings and their brokers who recommended GPB Capital Holdings to their clients may not have conducted appropriate due diligence on the funds.
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, brokerage firms around the country may be liable for investment or other losses suffered by its 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.