Tens of millions of dollars were paid in commissions with brokers-dealers and their representatives selling private placements to GPB Capital, but they have to face clients whose investments have fallen dramatically.
According to GPB documents sent to broker dealers on Friday, GPB raised $ 1.8 billion from wealthy investors who purchased the high risk private placements from registered representatives and their broker dealers. Together, they were paid $ 167 million in fees and commissions for the transactions. This means that brokers and their businesses collected 9.3% of the cash clients they invested in private GPB placements.
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Industry rules provide a 10% limit on commissions that businesses and brokers can collect when they sell a product to clients, and the commissions paid by GPB are not in line with industry practice. Investments such as private partner limited placements usually pay a 7% commission with the broker and 2% pay the representative’s broker. In comparison, commissions on mutual funds are generally less than half that amount.
Meanwhile, as clients were paying tough commissions, the value of their actual investments fell sharply. Last week the GPB estimated that the value of seven funds was $ 1.1 billion, or 61% of the capital originally raised.
The focus of the GPB is the purchase of auto dealers and waste management firms which aim to create high digital returns for clients.
One fund stands in particular: Armada Waste Management GPB. According to GPB, investors bought $ 163.4 million of the securities, but the current estimated value of the fund is $ 53.4 million.
This means that an investment of € 50,000 in Armada Waste Management is worth 67.4% and is now worth $ 16,330.
Approximately 60 brokers-dealers sold the private GPB arrangements.
When asked about the sharp reductions in the value of private placements, a spokesperson for the firm said: “GPB Capital is working to carry out the audit audits, which will provide the partners with limited exposure and additional information on performance. ”
One broker-dealer executive was uncomfortable that the latest GPB valuations of the private placements did not want to be recognized, which was acknowledged in March by the FBI.
“The GPB will not give any color under the valuations, and the brokers say, ‘What the heck,’ ‘the executive said. “This is what your client paid to lose their principal?”
In some potential comfort for investors, GPB said that it has returned $ 272 million to investors through distributions, which act as dividends. This represents 15% of investors’ capital. All of this money was a return of investor capital and not an investment return, according to GPB documents.
The GPB began registering the funds with the Securities and Exchange Commission in 2013, according to the documents it filed.