The Massachusetts Securities Division has launched an investigation into independent broker dealers’ sales practices in connection with private placements sponsored by alternative investment firm GPB Capital Holdings.
The regulators claim that they recently received a tip concerning the firm’s sales practices, which came on the heels of GPB’s recent announcement that it temporarily halted raising new money, as well as suspended redemptions to focus on accounting and financial reporting.
“GPB Capital Holdings, LLC is aware that certain broker-dealers have received requests for information from the Commonwealth of Massachusetts. GPB Capital is not in a position to comment on that matter. As we have previously disclosed to investors, GPB Capital is in the process of completing the audits of the financial statements for certain of its funds and is currently not accepting new capital from investors until that process is complete,” said a spokesperson on behalf of GPB Capital.
Two GPB private placements based on size are required to file financial statements with the SEC and both have missed filing deadlines, the regulators said. GPB is also currently in a private lawsuit with a former business partner who allegedly failed to follow through with a $40 million auto dealerships sale.
“While my securities division’s investigation is in the very nascent stages, recent activity within GPB raises red flags of potential problems,” said Secretary of the Commonwealth William Galvin. “These red flags, coupled with the fact that sales of private placements by independent broker dealers have been an ongoing source of investor harm, have led to this investigation.”
He added, “I must also express my serious concerns regarding the expected proposal by the SEC to expand who can participate in private securities offerings. Without a strong fiduciary rule to prevent sales practice abuses, it is utter folly not to know that Main Street investors will be hurt.”
The sweep involves 63 broker-dealer firms which sell GPB sponsored private placements. The regulators requested information concerning the extent of sales activity in Massachusetts, disclosure and marketing documents provided to investors in connection with the solicitations, and information regarding investor suitability.