David Gentile, the owner and now former chief executive officer of New York-based GPB Capital Holdings, pled not guilty to fraud and conspiracy charges at a hearing in Brooklyn federal court on Tuesday, according to a report by Reuters.
Gentile and two other defendants are accused of defrauding more than 17,000 investors out of approximately $1.8 billion, in what New York State Attorney General Letitia James is calling a “Ponzi-like” scheme.
Gentile’s bail was set at $500,000, secured by his home in Manhasset, New York. On Friday, GPB announced that he stepped down as CEO “until current matters are resolved,” with chief financial officer Rob Chmiel stepping in as interim CEO.
Gentile, along with Jeffry Schneider, the owner of GPB Capital’s placement agent Ascendant Capital, and Jeffrey Lash, a former GPB managing partner, were charged last week with engaging in a scheme to defraud investors by misrepresenting the source of funds used to make monthly distribution payments to investors at an annual rate of 8 percent.
Investors were allegedly told that the distribution payments would be fully covered by funds from operations, meaning that the companies purchased by the funds would be profitable enough for the payments to be made from cash flow, without drawing from capital raised by investors.
According to the feds, investor capital was used to pay for a “significant portion” of the distributions. Gentile and Schneider were allegedly aware that the GPB funds were underperforming, and authorized repeated distribution payments that used investor funds to cover income shortfalls.
The defendants allegedly used investor funds to enrich themselves and their family members, to subsidize private planes and luxury travel, and to buy a $355,000 Ferrari for Gentile.
Reuters reported that the title to the Ferrari was never transferred to Gentile, and investors bore a $183,000 loss when GPB sold the car after two years.
The U.S. Attorney’s Office for the Eastern District of New York is seeking more than $700 million in restitution. If convicted, the defendants each face up to 20 years’ imprisonment.
Seven state securities agencies and the Securities and Exchange Commission have filed civil actions against GPB for similar conduct.
GPB, which was founded by Gentile in 2013, served as the general partner of several investment funds, including GPB Holdings LP, GPB Holdings II LP, GPB Automotive Portfolio LP, GPB Waste Management LP, and GPB Cold Storage, LP. GPB managed the funds, which raised and invested capital in a portfolio of private equity investments.