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FINRA Fines Broker-Dealer over GPB Fund Sales

The Financial Industry Regulatory Authority has fined broker-dealer, Capital Investment Group Inc., $50,000 over sales of GPB Automotive Portfolio LP and GPB Holdings II LP.

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The Financial Industry Regulatory Authority has fined broker-dealer, Capital Investment Group Inc., $50,000 over sales of GPB Automotive Portfolio LP and GPB Holdings II LP, two private placement offerings sponsored by GPB Capital, according to a settlement letter issued by the regulator.

GPB Automotive was formed in 2013 to invest in automotive dealerships, while GPB Holdings 1 was formed in 2015 primarily to invest in the automotive, retail, and managed information technology sectors. After conducting due diligence on each offering, Capital Investment Group approved GPB Holdings II and GPB Automotive for sale by the firm’s registered representatives in August 2015 and June 2017, respectively.

According to FINRA, Capital Investment Group “negligently failed” to tell nine investors that the GPB had failed to timely make required financial filings with the Securities and Exchange Commission, including filing audited financial statements. The principal value of those nine sales, which occurred between May 4, 2018 and June 29, 2018, totaled $860,000. The broker-dealer received $68,800 in commissions.

GPB Holdings II and GPB Automotive raised a combined $1 billion from investors between July 2013 and June 2018.

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.

FINRA claims that after receiving the notice from GPB, Capital Investment Group sold eight limited partnership interests in GPB Automotive and one limited partnership interest in GPB Holdings II.

In addition to a censure and fine, Capital Investment Group was ordered to pay partial restitution of $64,800 plus interest.

Capital Investment Group, which accepted the sanctions without admitting or denying FINRA’s allegations, has 157 registered representatives and 98 branch offices.

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