Late on Thursday even as the Securities and Exchange Commission (SEC) made the emergency request for an independent monitor, a hearing on which was slated for Friday morning in the US District Court for the Eastern District of New York in Brooklyn.
As a result, GPB Capital Holdings has agreed to independent outside monitoring by Joseph T. Gardemal III, certified public accountant, forensic accounting specialist, and a managing director with Alvarez & Marsal Holdings in Washington, with years of experience working with automakers and dealers, will be the independent monitor that private equity firm GPB Capital Holdings has agreed to have to oversee operations.
SEC’s request was made with a view to protecting the interest of almost 17000 investors in four of the firm’s funds. The firm, set up in 2013 by David Gentile, Jeffry Schneider, and Jeffrey Lash, is battling allegations of running a Ponzi-like scheme to defraud investors, many of them over 60 years of age. It has been hit by a battery of civil actions by the SEC and seven states. At the same time, the three men at the helm have been indicted on criminal charges.
Several states, New Jersey, New York, and Illinois among them, have cited the massive fraud of using newly invested capital to pay off promised 8% dividends to earlier investors, as the reason for their action against GPB Capital. It has been characterized as a Ponzi-like scheme to fleece investors by none other than New York State Attorney General Letitia James.
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While Schneider is expected to respond on Friday, Lash and Gentile have entered ‘not guilty’ pleas. Gentile has, however, stepped down from the CEO position till the issue has been satisfactorily resolved.
As justification for their request for a monitor, the SEC voiced concern over a dozen dealerships being sold the previous year by GPB Capital, and the possibility of others, that sell their brands, being either terminated by car manufacturers or forced to sell out, further impairing the firm’s revenue as well as the value of its assets. Audited financial statements have not been filed by the firm for several years.
Financial moves of the firm, which owns dozens of auto dealerships, can be blocked by the monitor. The monitor will have 60 days in which to recommend further actions, the options being either to continue the monitoring or converting it to a bankruptcy or receivership. The GPB Capital has denied all accusations and said that it is taking steps to clear its name.