Lost Money in GPB Capital? You Are Not Alone – Act Quickly to Secure Your Funds
[This is one of a series of GPB Posts. Please see our cornerstone on GPB Fraud and How to Get Back Your Investment and our video.]
We have been saying since last year that GPB Capital is a scam. The company bills itself as an alternative management firm. Since 1983, the GPB Capital has raised almost $2 million dollars from investors, most of that in recent years.
Before we discuss the Massachusetts action and why it is so important, let’s summarize why we believe that GPB is a scam:
- The company has routinely failed to make required securities filings on some of its funds including GPB Holdings II ($646 million) and GPB Automotive Portfolio ($622 million). In some instances, they have missed yearsof filing deadlines
- The company’s auditor, Crowe LLP resigned, reportedly because of reported irregularities and undisclosed third party transactions.
- Last year, GPB announced huge losses in several of its funds, one fund dropped as much as 73%.
- A former GPB Holdings partner claims the company is a Ponzi scheme.(That’s our opinion too.)
- On October 23rd, 2019 the Justice Department indicted the GPB Capital’s chief compliance officer, Michael Cohn, with obstruction of justice and unauthorized disclosure of confidential information. Those charges relate to Cohn’s time with the SEC and not a GPB but this doesn’t seem like the guy that should be in charge of compliance of a multi-billion enterprise. There is also a claim that while at the SEC he offered to provide inside information to the company.
- The FBI, SEC, the Financial Industry Regulatory Authority (FINRA), New York and Massachusetts all have pending investigations.
So let’s talk about the Massachusetts investigation. We don’t think anyone should need more convincing but we know there are hundreds of investors, if not thousands, still sitting on the sidelines. Sit too long and it may be too late.
Massachusetts Charges GBP Capital with Securities Fraud
On May 27th, 2020, Massachusetts charged GPB with violating securities laws by making false statements to more than 180 Bay State investors who put more than $14 million in its private-equity funds.
The complaint filed by regulators lays out a clear picture of the history of GPB Capital. We don’t think it started out as a scam or Ponzi scheme decades ago but neither did Bernie Madoff. In our opinion, the company lost its way and began robbing from Peter to pay Paul.
According to the complaint, David Gentile created GPB Capital Holdings, LLC (“GPB Capital”) in 2013 as an offshoot of his father’s New York accounting firm, Gentile Pismeny & Brengel, LLP.
Since its inception, David Gentile has been the managing member of GPB Capital, and maintains full control over the company.
GPB Capital’s general strategy is to acquire middle market, income-producing companies, regardless of a specific fund’s strategy. According to its website, GPB Capital utilizes “four main criteria as the cornerstone of our acquisition thesis, regardless of which focus industry they are applied: current and sustainable yield, recession resiliency, high barriers to entry, and experienced operating partners/management teams.”
If you invested in one of the GPB funds, you probably read about their strategy.
To get people to invest, Gentile offered high sales commissions to stockbrokers to sell his funds. Good stockbrokers and fee based investment advisors usually do what is best for their clients. Many stockbrokers, however, are lured by the prospects of a fat commission check.
To facilitate the marketing and sale of its funds, GPB Capital utilized the broker-dealer branch office Ascendant Capital, LLC (“Ascendant Capital”). Conveniently, Ascendant Capital is wholly-owned by Gentile’s business partner Jeffry Schneider. Eventually, Gentile sought to fully integrate and take control of Ascendant.
In March 2017, Ascendant Alternative Strategies registered as a broker-dealer with the SEC and the Financial Industry Regulatory Authority (FINRA).
Brokerage firms must register in any state where they intend on soliciting clients. In October 10, 2017, Ascendant Alternative Strategies registered in Massachusetts.
If you didn’t know the tie between GPB and Ascendant Capital, you aren’t alone. We think Gentile tried to keep that relationship under wraps. According to Massachusetts securities regulators, “The line between Gentile, Schneider, GPB Capital, and Ascendant Alterative Strategies and Ascendant Capital is blurred beyond recognition.” The companies even share office space.
Gentile’s first fund was GBP Holdings. The key attraction of Holdings was the fund’s 8% distribution. The fund claimed it was making those distributions from profits. Massachusetts says that isn’t true.
GPB Holdings claims it is a diversified fund, with holdings in debt strategies, information technology, healthcare, and automotive retail. As the fund quickly grew its primary focus became automotive retail.
In May 2013 and shortly after the launch of its “diversified” fund, GPB Capital launched GPB Automotive Portfolio, LP (“GPB Automotive”). Unlike GPB Holdings, GPB Automotive’s strategy was to invest strictly in automotive dealerships and automotive retail.
“Emboldened by its success and the persistence of its marketing team, GPB Capital launched a number of other funds, some diversified, like GPB Holdings II, and others more specialized, such as GPB Waste Management and GPB NYC Development.”
GPB Capital’s success in fundraising came from its aggressive marketing strategies and big commissions to brokers.
Gentile hammered investors with its prime selling point – a yearly 8% distribution paid monthly. GPB Capital “carefully constructed the narrative that unlike a traditional risky private placement, where an investor places chips on a roulette table hoping for a positive outcome, investing in a GPB Capital fund would provide a continuous stream of income in addition to a big payday upon exit. GPB Capital’s approach worked, and to date the firm has raised over $1.5 billion.”
The big attraction for stockbrokers, of course, were the large commissions.
At first, GPB Capital was able to deliver. But as time went on, Massachusetts says what we have been saying, GPB is a Ponzi scheme.
According to the complaint filed last week by the State of Massachusetts,
“As time went on and GPB Capital raised more money, it was unable to deploy its capital efficiently. Instead of limiting contributions until capital was deployed, GPB Capital continued to take on new investors, especially for GPB Automotive and GPB Holdings II. As investor contributions increased, so did the capital required to continue to pay investor distributions. While GPB Capital maintained authority to suspend distributions whenever it wished, the firm continued to make its monthly distributions in order to maintain appearances and stay attractive to investors. In order to keep up with distributions, GPB Capital began dipping into other sources of income, contrary to statements made in its private placement memoranda and marketing materials. GPB Holdings, GPB Holdings II, GPB Automotive, and GPB Waste Management eventually turned to investor contributions to meet the demands of the 8% monthly distributions, and the fund financials tell as much. The funds’ financials show that distributions were issued that exceeded the funds’ net incomes, yet GPB Capital never updated any of its disclosure or marketing materials to reflect this.”
Massachusetts doesn’t use the word Ponzi scheme but taking investor contributions to pay dividends is the hallmark signature of a Ponzi scheme.
We suspect that the company will deny the charges but it still hasn’t been able to provide audited financials as required by the SEC. If it isn’t using investor money to pay distributions, that should be easy to prove.
We don’t think the company can prove it. In fact, the longer the company fails to provide audited financials and fails to submit required SEC reports, the more we worry.
Filing a false report with the SEC is a crime. Perhaps the company feels it is better off not filing then to a) tell the truth or b) file a false report. We think the company is in the classic catch-22. Unfortunately, investors are the ones paying the price.
Suing Stockbrokers for GPB Losses
While many stockbrokers get commissions of 1%, we believe stockbrokers who sold GBP funds were paid between 7% and 9%. That kind of money can cause some brokers to do what is best for themselves instead of what’s best for their customers.
Industry rules require brokers to know their customers (KYC rules) and to only make suitable recommendations. Unfortunately, many brokers forgot that lesson and made recommendations that were in their own best interests (commissions). Because these funds aren’t your typical highly traded stock, they aren’t suitable for most investors and certainly not anyone who needs access to their money.
Investments in GPB funds are considered private placements. That means they can only be sold to accredited investors. We believe that some brokers cut corners and sold to any investor with a checkbook. Once again, if you don’t meet the SEC’s accredited investor test, you may be able to recover any losses.
Finally, brokerage firms have an obligation to perform due diligence on the products they are recommending to customers. That due diligence doesn’t mean simply finding the products that pay the highest commissions.
The bottom line? If your broker recommended and sold you a GPB Capital fund, you may be able to recover your losses. Even if your broker has no money, his or her employer (the brokerage firm) can be held liable.
Massachusetts says that GPB funds were sold by as many as 63 different brokerage firms. We believe the following companies are or were heavily pushing GPB Capital:
- Accelerated Capital Group
- Advisory Group Equity Services
- Aegis Capital Corp.
- American Capital Partners
- Arete Wealth Management
- Arkadios Capital
- Ascendant Alternative Strategies
- Ausdal Financial Partners
- Avere Financial Group
- Axiom Capital Management
- BCG Securities
- Benjamin & Jerold Brokerage
- Cabot Lodge Securities
- Calton & Associates
- Cape Securities
- Capital Investment Group
- Center Street Securities
- Coastal Equities
- Colorado Financial Service Corp.
- Concorde Investment Services
- Crown Capital Securities
- Crystal Bay Securities
- David A. Noyes & Company
- Dawson James Securities
- Dempsey Lord Smith
- DFPG Investments
- Dinosaur Financial Group
- Emerson Equity
- FSC Securities Corp.
- Geneos Wealth Management
- Great Point Capital
- Hightower Securities
- IBN Financial Services
- Innovation Partners
- International Assets Advisory
- Kalos Capital
- Kingsbury Capital
- Landolt Securities
- Lewis Financial Group
- Lowell & Company
- Madison Avenue Securities
- McDonald Partners
- McNally Financial Services Corp.
- Moloney Securities
- Money Concepts Capital Corp.
- MSC – BD
- National Securities Corp.
- Newbridge Securities Corp.
- Orchard Securities
- Pariter Securities
- Purshe Kaplan Sterling Investments
- Royal Alliance Associates
- SagePoint Financial
- Sandlapper Securities
- SCF Securities
- Sentinus Securities
- Silber Bennett Financial
- Stephen A. Kohn & Associates
- Triad Advisors
- Uhlmann Price Securities
- Vanderbilt Securities
- Vestech Securities
- Western International Securities
- Westpark Capital
- Whitehall-Parker Securities
- Windsor Street Capital
- Woodbury Financial Services
If or when GPB goes under, don’t expect to get much from the company. Going after your broker and his or her brokerage firm is your best bet. We urge you not to sit too long and wait. Some of these brokerage firms aren’t very solvent either. The earlier you make a claim, the better your chances of recovery.
How to Make a Claim
Making a claim is easy. Just contact us and we’ll take it from there.
Many of the investors we speak with believe that suing a stockbroker is expensive or difficult. In the U.S., claims against stockbrokers are typically subject to mandatory arbitration before FINRA.
Arbitrations are usually much quicker than lawsuits and when they are over, they over. (Most appeals are not allowed.)
We handle these cases on a contingent fee basis meaning if we don’t win, you don’t pay. To learn more, visit our GPB Investor Loss Claims page. Ready to see if you have a claim involving GPB Capital? Contact us online, by email brian@mahanylaw.com or by phone 202-800-9791. All inquiries are kept strictly confidential.
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