GPB Capital Holdings Investment Losses
Posted on Monday, August 12th, 2019 at 2:17 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 $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.
In May 2020, Massachusetts filed a civil fraud claim against GPB Capital Holdings LLC alleging that the firm made false statements to roughly 180 investors who put more than $14 million in its private-equity funds. Securities regulators in the state of Massachusetts are seeking that GPB Capital Holdings pay fines, disgorgement of profits, and receive a permanent ban from doing business in Massachusetts. The complaint alleged, “Over 180 Massachusetts investors contributed more than $14,000,000 to GPB Capital funds under false and misleading pretenses, in reliance on GPB Capital private placement memoranda and marketing materials, and without knowing that GPB Capital continually engaged in self-dealing from inception… In connection with offerings made to Massachusetts investors, GPB Capital made false and misleading statements and omitted material facts in connection with the offer and sale of GPB Holdings, GPB Automotive, GPB Holdings II, GPB Waste Management, and GPB NYC Development.” According to the findings, there were 47 Massachusetts residents who made 42 separate investments in GPB Automotive. The Massachusetts investors relied on PPMs and marketing materials issued by GPB Capital for GPB Automotive in connection with their investments, and based on those recommendations the Massachusetts residents invested $3,149,639.59 in GPB Automotive and they paid $286,348.49 in commissions. Additionally, 17 Massachusetts residents invested $1,204,000.00 in GPB NYC Development and paid $125,645.00 in commissions. Additionally, 11 Massachusetts residents invested $756,575 in GPB Waste Management and paid $86,106.06 in commissions.
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, David Gentile and Jeffrey 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 render 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, Rosenberg sued GPB Capital Holdings and complained to the Securities and Exchange Commission (SEC), alleging that the firm engaged in serious financial misconduct. According to the amended complaint, GPB Capital Holdings removed David 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 the 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 is 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 faces a potential class action lawsuit from disgruntled investors seeking financial information about its funds. The complaint alleges 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 one of GPB Capital Holdings’ David Rosenberg, a former business partner and chief executive of Prime Automotive Group, 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, in which it used money from investors to prop up the performance of auto dealerships it owns, as well as to finance payments to other investors, 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 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.”
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, 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. It is reported that GPB Capital Holdings raised $600-$800 million from 4,000 investors through independent brokerage firms, and claims to have raised $1.5 billion in total.
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:
- Royal Alliance Associates Inc.
- Sagepoint Financial Inc.
- FSC Securities Corp.
- Woodbury Financial Services Inc.
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.Disclaimer: Clients are responsible for costs. Contingency fee is calculated before deducting costs incurred in the case.