Towards the end of June, GPB Capital Holdings had bad news to report: more changes in management and financial oversight that will cause people to ask even more questions about the besieged alternative asset manager, and a year and a half drop of regulatory assets under said management. At the end of last month, the firm reported $238.6 million in regulatory assets under management, filing with the Securities and Exchange Commission a Form ADV. At the end of 2017, their firm had reported a much higher $434.3 million in AUM. That’s a 45.2% difference or a $196.3 million drop!
GPB Capital’s business model is all about raising money from investors selling high-commission products to scores of independent broker-dealers, then use the capital from the sales to buy businesses like trash haulers or car dealerships. This business model isn’t usually affected by broad stock market swings. Nancy Sterling, a spokesperson for GPB Capital declined to comment on why there was such a large decline in AUM.
Of course, GPB Capital is currently facing quite a few investigations from federal and state authorities. They have raised approx. $1.8 billion from investors all ever since 2013 through these private partnership sales, but distributions, or investor steady returns, have not been paid since 2018. And during 2019, GPB Capital reported significant declines in the values of its funds, delivering a crippling blow to investors. Said assets under management from earlier were reported on GPB’s Form ADV, and are controlled by the registered investment adviser. These are different from other GPB Capital-managed holding companies, which are not included on the GPB’s Form ADV.
At the same time, GPB Capital also wrote in their SEC filing other disconcerting issues for broker-dealers and investors alike that had sold private placements. The company in charge of valuations for GPB Capital has resigned, and the auditor for the Armada Waste Management fund has also resigned. A new business named Highline Management Inc. formed at the start of 2020 to manage GPB Capital’s business affairs.
Sterling did comment that the company had no extra information about Highline to share, and that the valuation provider and the Armada Waste auditor resigned without cause, as well as stating that GPB had hired a brand new valuation provider. The company has promised its investors that it would produce the audited financial statements since last year, but nothing has been revealed as of time of writing.
“How did GPB Capital lose half the money,” Jason Haselkorn (InvestmentFraudLawyers.com), a law firm that represents dozens of investors that have complaints against the investment firms that sold the GPB Capital Holdings asked. “Investors would have a better idea if GPB released its financials and completed an audit.”
Angry investors and multiple investigations are not the only troubles facing GPB Capital. It’s missed multiple deadlines to file audited financial statements for funds, had offices raided back at the end of 2019 by the FBI, and their former chief compliance officer was indicted last October and charged with obstruction of justice.
Just a few weeks ago, GPB Capital told investors that it was going to delay releasing “Schedule K” and tax documents for investors.
GPB Capital has been under investigation by the Securities and Exchange Commission and the FBI for well over a year now. And just this past May, secretary of the Commonwealth of Massachusetts William F. Galvin charged GPB Capital with defrauding 180 local investors who had purchased private placements from broker-dealers that sold the products charging steep commissions of 7-8%.