Advisor Group-affiliated broker-dealers Woodbury Financial, SagePoint Financial, Royal Alliance Associates and FSC Securities agreed to pay a total of $1.27 million in fines and restitution to approximately 200 retail clients who were improperly sold limited partnership units in GPB Capital’s GPB Automotive Portfolio, LP.
According to a settlement with FINRA released earlier this month, without admitting or denying fault, the four broker-dealers accepted the regulatory agency’s findings that they sold units in the private placement after “negligently failing” to inform investors that the issuer had failed to make required filings with the Securities and Exchange Commission, including filing audited financial statements.
According to the letter of acceptance, waiver and consent, the four broker-dealers continued to sell the GPB Automotive LP units after being notified by GPB Capital on April 27, 2018 that the filing of audited financials due by April 30, 2018 would be delayed. Nevertheless, between May 4, 2018 and June 29, 2018, the four firms completed more than 200 investments in the offering totaling more than $16 million, which earned the firms more than $1.1 million in commissions. Importantly, none of the investors were informed of the failure by GPB to timely file its audited financial statements, which constituted a violation of FINRA Rule 2010.
GPB Capital is a New York-based alternative asset management firm founded in 2013 that sponsors a number of Regulation D private placement investment funds. Last year, the Justice Department and the Securities and Exchange Commission charged the firm and its executives with running a fraudulent “Ponzi-like scheme” that raised approximately $1.8 billion from investors.
In July 2017, GPB Capital filed a lawsuit in New York against one of its former operating partners who had allegedly failed to acquire certain automotive dealership interests. The former partner made various counterclaims, including that GPB allegedly falsified financial statements to conceal fraud. GPB Capital denied the allegations and the litigation remains pending.
GPB Capital later notified broker-dealers that sold its products that it was in the process of registering certain classes of securities issued by its limited partnerships with the SEC. As part of that process, GPB was required to file audited financial statements, which they said would be delayed pending the completion of a forensic audit.
Specifically, GPB disclosed that it and its auditors “determined that it would be prudent to hire a third-party firm to complete a forensic audit in order to endeavor to put [the former partner’s] counterclaims and other allegations to rest.” FINRA said that the offering documents were not timely amended to disclose that the filings would be delayed.
The Advisor Group firms are just the latest in a long line of broker-dealers that have been sanctioned by FINRA for similar alleged misconduct related to sales of GPB offerings.