The Financial Industry Regulatory Authority (FINRA) has fined National Securities Corporation $9 million. This includes $4.8 million in net profit it earned from underwriting 10 public offerings involving GPB Capital.
FINRA ordered GPB Capital Holdings to pay $625,000 in restitution for failing to provide important information to consumers who purchased private placements. The business was found to have “unintentionally omitted” to notify investors in GPB Capital Holdings’ private placements between April 2018 and July 2018. This included delays in mandatory public filings by the issuer, including its audited financial reports.
FINRA also imposed a $3.6million penalty for this and other operational and supervisory infractions.
Investors in GPB Capital Holdings have consistently gotten negative news concerning their investments over the past three years. In an effort to help investors successfully recover their investment losses and damages, Haselkorn & Thibaut, P.A. (InvestmentFraudLawyers.com) has filed several GPB Capital cases (in the form of FINRA arbitration claims).
The “GPB Capital Investor’s Guide” and a free case evaluation are available to investors who call 1-888-628-5590. The GPB Investor’s Guide aims to assist investors in understanding the ongoing investigations, specifics surrounding the GPB investments, and their numerous alternatives for recouping investment losses and damages. When investors call, they will be given an appointment right away, as well as quick, polite, free advice and information about their case review from a professional securities attorney.
Table of Contents
GPB Capital – Is GPB Capital a Ponzi Scheme?
Many investors and investment fraud lawyers have alleged that GPB Capital was a Ponzi Scheme. GPB failed to provide required financial reports to investors, failed to disclose conflicts of interest, and sold investors non-traded REITs.
Last year the US Securities and Exchange Commission (SEC) charged three individuals with operating a Ponzi scheme called GPB Capital Holdings, LLC. The men are accused of defrauding over 17,000 retail investors by misrepresenting the investments the company held and promising them monthly distributions. These distributions were paid from the investor’s funds. The SEC has filed a civil suit against all three men, which was filed after investors began to experience losses in the GPB Ponzi scheme.
The companies involved in the scheme allegedly used investor money to purchase private jets and all-terrain vehicles. One report claims that GPB used the fund to pay for its owner’s 50th birthday and a Ferrari FF worth $355,000, among other things. The company is now facing several federal class-action lawsuits, claiming that it was operating a Ponzi scheme. It failed to provide investors with audited financials, and many of its investments were private placements, which are only meant for high-net-worth investors. The investments are extremely risky.
It failed to provide investors with the required financial reports
A recent lawsuit filed against a former business partner alleges that GPB Capital failed to provide its investors with required financial reports. The lawsuit aims to recover $42 million that was invested in GPB funds. In addition to the lawsuit, GPB Capital Holdings announced that it will not accept new investor capital and is “straightening out” it’s accounting for two of its larger funds. While it is not known what caused the delay, the lawsuit does suggest that GPB has missed deadlines in the past.
The complaint alleges that GPB Capital failed to disclose certain relationships, conflicts of interest, and third-party transactions with its investors. The allegations also involve the company’s founder, David Gentile, and Jeffry Schneider, an independent “strategic advisor” at the firm. In addition, the Massachusetts Securities Division is seeking an administrative fine, a permanent bar from being registered, disgorgement of profits, and rescission offers to residents who were sold GPB Capital securities.
It failed to disclose conflicts of interest
According to the SEC, the investment firm GPB Capital failed to disclose its conflicts of interest. The complaint alleges that Gentile, Schneider, and Ascendant Capital received millions of dollars in compensation and fees but did not disclose these conflicts of interest. The SEC claims that these individuals acted in a conflict of interest by failing to disclose the true value of their investments and their conflicts of interests. It also alleges that the defendants failed to properly register the Funds and underlying securities.
The SEC and the FBI are investigating GPB. A former SEC examiner was also charged with obstructing justice in connection with the case. The amended class action complaint focuses on the fact that GPB Capital failed to disclose its conflicts of interest. It also alleges that its chief compliance officer, Jeffrey Schneider, improperly solicited and sold private placements on behalf of Ascendant Capital.
It sold retail investors non-traded investments
The recent investigations into GPB Capital, a New York-based alternative asset management firm, are highlighting the company’s financial troubles. GPB was raided by the FBI and FINRA for operating a Ponzi scheme, and many brokerage firms continue to sell these non-traditional investments, despite the risks and commissions. GPB also froze investors’ monthly interest payments. FINRA and the SEC are investigating GPB’s broker-dealers for their part in the fraudulent sales. Investors couldn’t sell the GPB funds until they got notices from their broker-dealers.
The SEC recently fined two broker-dealers for the GPB Capital sales and distribution practices. Although this is only the latest news in this scandal, the company has been in trouble for the past three years. Sadly, investors are filing lawsuits to recover their losses.
As of February 2019, GPB Capital Holdings, LLC, and three individual owners were charged with fraud. Jeffrey Schneider, GPB’s CEO, and David Gentile, its placement agent, have pleaded guilty to charges related to the fraudulent sales of non-traded REITs. They are accused of omitting millions of dollars in compensation and fees from investors. This is a clear violation of whistleblower protection laws.
It has been raided by the FBI
Earlier this year, the SEC and the Financial Industry Regulatory Authority announced an investigation into GPB Capital Holdings LLC. The same month, the Massachusetts secretary of state announced a similar investigation. Neither investigation is related to the raids at Five Star Carting or GPB. In a brief statement, GPB denied the allegations. However, a new lawsuit filed against the firm alleges that it had illegal funding sources and executives dangling high commissions to broker-dealers.
The investigation uncovered a large scheme in which GPB Capital Holdings, LLC, and three of its affiliates allegedly misrepresented the investment holdings of their companies. The defendants falsely promised investors an annual return of 8% or more, despite knowing that they couldn’t generate that kind of income. Private communications among defendants also showed that they were aware that GPB’s cash flow would not support the payments made to investors.
It has been investigated by FINRA
You may be wondering if your broker or advisor has been investigated by FINRA. Regardless of the extent of the investigation, it is important to ensure compliance with FINRA rules. In addition to conducting routine examinations of members, FINRA also follows up on potential rule violations, often as a result of customer claims. If facts come to light during a customer proceeding, a broker or advisor may be under investigation.
In an investigation, a FINRA regulator will likely look into your entire history in the industry. Typically, he will investigate past violations of rules and conduct and may seek out previous instances of similar conduct. Oftentimes, a FINRA investigator will seek an employment file from every previous employer. However, your lawyer can help the investigators by presenting evidence. When you cooperate with the investigation, the regulator will not take you to court.
FINRA Investigation into National Securities GBP Capital Sales
Jessica Hopper is the executive vice president and chief of FINRA’s Department of Enforcement. She stated that investors have a right not to be influenced by false market movements caused by underwriters. The company stated that it will continue to enforce the rules intended to stop underwriters from manipulating the market for the security offered. This includes boosting the offering price and insinuating aftermarket demands.
FINRA found that National Securities had violated Rule 101 of Regulation M. It illegally induced or attempted to induce customers to buy stock in the aftermarket for the offerings between June 2016 and Dec 2018, while acting as an underwriter of three initial public offerings (IPOs) and seven follow-on offerings.
FINRA found that National Securities violated Regulation M by performing one or more of these during the restricted period for each offer.
Allocations that are dependent on the consent of a branch manager or representative to purchase a predetermined amount of shares on the secondary market for the client of the branch manager or representative, also known as “tie-in agreements”
Accepting to speak with clients who have been allocated shares to purchase more shares in the immediate secondary markets
Threatening to reduce allocations to reps if they refuse to allow their clients to participate in the aftermarket
According to FINRA, the activity of National Securities was designed to artificially increase aftermarket demand and support the prices of the securities. These securities were often lightly traded. The performance of the underwritten offers in the aftermarket was a key factor in the firm’s reputation as well as its ability to generate future investment banking fees.
The settlement resolves many other complaints, including those of the firm:
- Between January 2005 and April 2020, 33,000 short sales deals were not located.
- One of the representatives for NSC was found to have falsified information about assets and suitability between September 2013 to May 2017. This was to circumvent NSC’s restrictions on concentration levels in his non-traded real property investment trust recommendations. FINRA was also found to have been misled by the representative about stock warrants it had acquired in connection to an October 2016 transaction.
National Securities consented to the publication by FINRA of its findings in this case, without pleading guilty or innocence.
National Securities Problems Continue
Founded in 1947, National Securities Corporation has grown to become one of the nation’s largest independent broker-dealers with Registered Representatives throughout the United States. Despite its size, National Securities Corporation remains small enough to provide personalized attention to each client while having the flexibility to offer competitive products and services. In addition to its individualized service, the company offers the same benefits as a large, regulated broker-dealer, such as a competitive commission structure.
The company has been under investigation for the past three years for potential violations of the Securities and Exchange Act. Several law firms have launched an investigation into the company’s advisors for making unsuitable investment recommendations, over-concentration, and churning. The company has recently partnered with CAIS to improve its operations.
Regulatory complaints against National Securities Corporation include numerous violations of the SEC and FINRA rules. In addition to this, a claimant in one FINRA arbitration against the company was awarded over $200,000 in compensatory damages, interest, costs, and attorney’s fees.
A claimant who alleged suitability issues was awarded more than $500,000 for his or her losses. A third claimant claimed that National Securities Corporation representatives failed to properly review offering documents, and churned more products based on his or her needs and wants.
A second breach of the DFS’s Cybersecurity Regulation occurred at National Securities and involved unauthorized access to email accounts. This breach exposed sensitive non-public personal data of National Securities customers.
Additionally, the company failed to implement multi-factor authentication and other improved access controls, as required by the Cybersecurity Regulation. Further, National Securities failed to properly implement Multi-Factor Authentication and failed to falsely certify that it is in compliance with the Cybersecurity Regulation for the calendar year 2018.
The company has approximately 574 registered agents, 119 branch offices, and extensive securities activity.