Massachusetts Securities Division Charges GPB for Allegedly Defrauding Investors
The Massachusetts Securities Division has charged GPB Capital Holdings with allegedly violating state securities laws, after an investigation found that the company purportedly issued marketing materials to more than 180 Massachusetts investors which contained material misstatements and omissions.
The Massachusetts Securities Division has charged GPB Capital Holdings with allegedly violating state securities laws, after an investigation found that the company purportedly issued marketing materials to more than 180 Massachusetts investors which contained material misstatements and omissions.
In an administrative complaint filed yesterday, the division claims that Massachusetts residents contributed more than $14 million to five GPB funds, relying on private placement memoranda and other marketing materials which stated that investor distributions would be paid from operational profits. However, contrary to the information provided to investors, the regulators indicated that GPB used investor funds to pay distributions.
GPB Capital is the majority owner of the Massachusetts-based company Prime Automotive Group.
“While GPB Capital maintained authority to suspend distributions whenever it wished, the firm continued to make its monthly distributions in order to maintain appearances and stay attractive to investors,” the complaint states. “In order to keep up with distributions, GPB Capital began dipping into other sources of income, contrary to statements made in its private placement memoranda and marketing materials.”
The complaint also alleges that GPB failed to disclose related third-party transactions, conflicts of interest, and certain relationships, such as the one it had with Ascendant Alternative Strategies (AAS). AAS is a company indirectly owned by GPB founder David Gentile and Jeffry Schneider, a “strategic advisor” at GPB who has received compensation for his involvement with GPB fund acquisitions.
The Massachusetts Securities Division is seeking an administrative fine on GPB, as well as a permanent bar from registration in the state, and that all profits be disgorged, and rescission offers are made to all residents who were sold securities in violation of state law.
GPB focuses on acquiring private companies in various industries, including the automotive retail and waste management sectors, and raised more than $1.8 billion in investor equity through various private placement offerings. The firm suspended fundraising and redemptions in August 2018 to, according to the company, “focus on accounting and financial reporting on the GPB Automotive Portfolio LP and the GPB Holdings II LP.”
GPB missed multiple deadlines for its audited financial reports, most recently due to the resignation of the firm’s auditor and audit committee in November 2019. The resignations followed the indictment of Michael Cohn, its new managing director and chief compliance officer who joined the firm in October 2018.
Cohn, a former Securities and Exchange Commission examiner, was charged with obstruction of justice, unauthorized computer access and unauthorized disclosure of confidential information for allegedly accessing and disclosing confidential information to GPB while employed with the SEC.
Federal prosecutors alleged that during his discussions with GPB about obtaining a job there, Cohn told GPB senior management that he had inside information about the SEC’s investigation, which they claim he disclosed. Cohn is presumed innocent unless and until proven guilty.
GPB has also been named in a number of class action lawsuits and other investigations. Last year, the company disclosed that representatives from the Federal Bureau of Investigation and the New York City Business Integrity Commission made an unannounced “visit” to the company’s headquarters in Manhattan. GPB said that the agencies obtained a search warrant to collect materials from the premises and believes that the visit was a continuation of previous ongoing inquiries.
Specifically, the company had received a subpoena from the U.S. Attorney’s Office – Eastern District of New York that requested documents related to a waste management fund in connection with the NYC Business Integrity Commission’s investigation. Additionally, at the time, the firm confirmed that it had received subpoenas from the Securities and Exchange Commission and the New Jersey Bureau of Securities and said that it is cooperating with the various agencies and their document requests.
While GPB was not told the cause of the investigations, other than they are in connection with potential violations of general securities laws and regulations, the company pointed out that much of the information requests concern issues raised by former operating partner, Patrick Dibre.
GBP sued Dibre in July 2017 for allegedly reneging on the sale of multiple car dealerships in the New York metropolitan area, and the company is seeking the return of $42 million it had paid to the former business partner.
