Criminal Trial Begins for GPB Capital Holdings Execs
The White Law Group continues to investigate potential securities fraud claims involving broker dealers who may have improperly recommended high risk GPB Capital Holdings offerings to investors.
In February 2021, the CEO of GPB Capital Holdings, along with two others, were accused of running what’s described as a massive Ponzi-like scheme, that allegedly scammed 17,000 investors across the U.S. out of over $1.7 billion, as per the U.S. Attorney’s Office for the Eastern District of New York.
According to Investment News today, the criminal trial of two senior executives of GPB Capital Holdings commenced in federal court in Brooklyn. This trial marks a significant chapter in a long-standing case involving accusations of fraud related to $1.8 billion invested in high-risk private placements through GPB. Investors and financial advisors have been mired in uncertainty and frustration over the fate of their investments.
GPB Capital Holdings: Background and Allegations
GPB Capital Holdings, led by the two executives, founder and CEO and the head of sales , reportedly raised $1.8 billion from investors starting in 2013, primarily through private placements sold by over 60 broker-dealers. Investors, lured by the promise of high yields at a time of low interest rates, have not received consistent returns since 2018. A third executive, managing partner Jeffrey Lash, pleaded guilty to related charges in 2021.
The company invested mainly in auto dealerships and waste management businesses. Despite raising substantial funds, GPB has struggled to provide the promised returns, and in 2018, concerns escalated when GPB failed to make required filings with the SEC, including audited financial statements for its largest funds. This triggered further scrutiny and investigations.
Legal Proceedings and Fraud Accusations
In February 2019, the FBI raided GPB’s Manhattan offices. Subsequently, in 2021, the Justice Department and the SEC charged the three men with various fraud offenses, including securities fraud, wire fraud, conspiracy, and running a Ponzi-like scheme. The indictment alleges that GPB executives misled investors about the sources of funds used to pay distributions, falsely claiming they came from investment returns, while they were using new investor money to pay earlier investors.
Internal communications revealed during the investigation reportedly showed that the executives were aware of the financial troubles at GPB. For instance, in a 2016 text, one executive admitted that they needed to “man up and write checks,” supposedly indicating they were returning money they had already collected.
Investor Frustration and Ongoing Uncertainty
A significant source of frustration for investors and financial advisors is the lack of a clear plan to return any of the money recovered from GPB’s assets, which include $1.37 billion sold off from its holdings. Despite a receiver being appointed to take control of GPB, progress has been slow, leaving investors in limbo.
The GPB case has left many in the financial sector “bewildered,” as described by a senior brokerage executive who remarked on the complexity and strange nature of the case in the Investment News article. With more than 60 broker-dealers involved in selling GPB’s private placements, the case also raises questions about the oversight and responsibilities of these financial intermediaries.
The criminal trial is expected to last a month, drawing significant attention from investors, regulators, and the financial industry at large.
GPB Capital Holdings – Timeline of Events
It’s been a long road for GPB Capital investors, beginning in 2018 when William Galvin and the Massachusetts Securities Division launched an investigation into the “sale practices” of 63 Broker Dealers who were selling the GPB capital private placements.
February 2020 – GPB Delays K1s for Shareholders
The company reportedly notified investors of its GPB Automotive Portfolio fund that it won’t be delivering key tax documents, such as the Schedule K-1, to them in time for this year’s April 15th tax deadline.
July 2019 – Partner files Suit Claiming “Ponzi Scheme”
Prime Automotive Group CEO David Rosenberg reportedly filed a lawsuit in Massachusetts alleging his business partner, GPB Capital, is running a Ponzi scheme by using new investment money to pay returns to existing investors, according to an article in the Portland Press Herald.
June 2019 – Significant Losses
The company reported significant losses in the value of the same two investment funds, GPB Holdings II and GPB Automotive Portfolio, which have seen declines in value, respectively, of 25.4% and 39%.
Rosenberg reportedly filed the lawsuit in Norfolk Superior Court, after GPB Capital allegedly failed to pay Rosenberg $5.9 million on July 1 as part of a partnership buyout reportedly involving dozens of auto dealerships.
May 2019 – GPB Capital Holdings Delays Filing Financials
GPB Capital Holdings has shown no signs of filing financials a year after stating its intention to take a break from raising money while it straightens out the accounting and financial statements of two of its existing funds.
Dealing with proper accounting standards was allegedly the reason for the delay last year. What’s the hold up now? According to Investment News, “The company won’t say, but keep in mind that GPB’s CEO and lead partner, David Gentile, is a CPA. That means even the accountant isn’t doing the accounting at GPB.”
August 2018 – Company Suspends Distributions and Halts Sales
The trouble apparently began when GPB Capital Holdings announced the decision to stop raising new money, and suspended redemptions so that they could reportedly focus on straightening up their financial reporting on two of their funds, GPB Holdings II and GPB Automotive Portfolio.
Investigating Potential Claims involving GPB Capital Holdings
According to one report, while investors are suffering great losses, financial advisors and brokerage firms have earned more than $160M in commissions, including $52.5M from the GPB Automotive Portfolio.
The White Law Group has represented numerous investors in claims against their brokerage firms in connections with their investments in risky GPB Capital offerings, including the following:
Armada Waste Management LP (f/k/a GPB Waste Management LP) GPB Holdings II GPB Holdings I GPB Automotive Portfolio GPB Cold Storage GPB NYC Development GPB Holdings Qualified LP GPB Holdings Automotive LLC
Private Placement investments such as GPB offerings are highly complex, high-risk investments. They are only suitable for sophisticated, accredited investors and institutions.
Unfortunately, brokers may not always adequately explain the risks and liquidity problems involved with purchasing units in a limited partnership or limited liability company. These investments are often considerably more risky than traditional investments such as stocks, bonds, or mutual funds just because of lessor oversight by regulators. They also typically come with high fees and commissions.
Due Diligence
Broker dealers are required to perform adequate due diligence on all investment recommendations they make. They must ensure that each investment is suitable for the investor considering the investor’s age, risk tolerance, net worth, financial needs, and investment experience.
If a broker or brokerage firm makes an unsuitable investment recommendation or fails to adequately disclose the risks associated with an investment, they may be liable for investment losses through FINRA arbitration.
Class Action vs. Individual FINRA Arbitration Lawsuit
People often wonder whether a large class action lawsuit is a better litigation option for them than an individual FINRA arbitration case. The answer depends on many factors, but typically if the loss sustained is large (say larger than $100,000), an individual arbitration claim is likely a better option. Class actions as a recovery option are more appropriate for grouping large numbers of individuals who have small claims – too small to generally pursue individually.
Hiring a Securities Attorney
If you have suffered losses investing in a GPB Capital Holdings offering at the advice of your financial advisor, the securities attorneys at The White Law Group may be able to help you. Please call the offices for a free consultation at 1-888-637-5510.
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Seattle, Washington.
