On Thursday, the Securities and Exchange Commission (SEC) has charged senior executives of GPB Capital Holdings for perpetrating a fraud and running a Ponzi scheme. GPB Capital, that raised over $1.8 billion from 17000 investors, is rapidly unravelling. Also on Thursday, David Gentile, Jeffrey Schneider and Jeffrey Lash, executives of GPB, have been charged with securities fraud, wire fraud and conspiracy in the Eastern District of New York, upon the Justice Department unsealing a criminal indictment.
A broker-dealer has lost an arbitration claim of $515,000 for selling private placements managed by GPB Capital to customers. The amount includes client legal fees which, for such cases, is an unusual distinction. This happened just last week.
GPB Capital Lawsuit
I interviewed Matt Thibaut from Haselkorn & Thibaut, a national firm that specializes in investors rights and fraud. He told me that the firm has been investigating GPB Capital for over two years and currently represently investors in several lawsuits. Thibaut stated, “We believed that this was a long time coming and are not surprised by the SEC’s charges.For some investors that had held out hope that GPB was a legitimate business and investment, this is a very tough day knowing that their investment was used to fund a Ponzi scheme. For other investors, today’s charges by the SEC may bring a sense of closure to what, for many, had been long suspected.”
He continued, “Finally, today’s charges by the SEC will hopefully put an end to the ongoing misrepresentations made by the many firms and broker’s that sold GPB that strung investor-clients along hoping for a brighter day. Honestly, with so much regulatory scrutiny that had been pending for years, the SEC’s formal action was the other shoe that many claimant-side lawyers and investors were waiting to fall, and there may be more to come.”
Additional GPB Capital Holdings Complaints
In parallel to the SEC complaint, civil lawsuits have been filed by several states like New York, New Jersey and Alabama, as advised by them today morning.
The case pertains to the raising of $1.8 billion by GPB beginning in 2013. This was done through a network of over 60 broker-dealers. In some cases, clients were charged up to 8% for the investments, done as private placements.
The money was raised by way of sale of private partnerships and was expected to deliver steady returns, called distributions. The steady returns have not been delivered since 2018. GPB Capital has been unavailable for comments.
GPG Capital Investigation
According to the SEC, David Gentile, the owner and CEO of GPB Capital, and Jeffry Schneider, the owner of GPB Capital’s placement agent Ascendant Capital, lied to investors by telling them that the 8% annualized distributions was paid out of monies generated by GPB Capital’s portfolio companies, using Ascendant Alternative Strategies, the marketing broker-dealer.
The truth was that investor money was used by GPB Capital to pay parts of the 8% return, a classic Ponzi scheme-like attribute.
In order to convey the impression that income was about adequate to cover the payment of distributions, GPB Capital and Gentile, with the assistance of Jeffrey Lash, a former managing partner at the firm, also appear to have doctored the financial statements of some limited partnership funds managed by GPB Capital, the SEC has contended.
Other charges include misrepresentations by GPB Capital and Ascendant Capital to investors about the compensation, including fees, received by Schneider and Gentile, which was in millions of dollars.
Failure to deliver audited financial statements, failure to register two funds with the Commission and keeping investors in the dark about the real financial situation of the limited partnership funds were the ruses that enabled the scheme to continue for over four years, according to the SEC.