The North American Securities Administrators Association (NASAA) has reported that seven state securities agencies have filed regulatory actions against New York-based investment adviser GPB Capital Holdings LLC and others for their alleged involvement in a $1.8 billion “Ponzi-like” scheme that has affected approximately 17,000 investors across the United States.
Civil complaints were filed in state court by state securities regulators in Alabama, New Jersey, and New York alleging that GPB Capital, New York-based broker-dealer Ascendant Alternative Strategies, Texas-based third-party marketing liaison Ascendant Capital LLC, and principals David Gentile, Jeffry Schneider, and Jeffrey Lash violated state securities laws and defrauded investors who purchased limited partnerships in various private equity funds controlled by GPB.
In addition to the civil filings, Georgia, Illinois, Missouri and South Carolina initiated simultaneous administrative proceedings with investigative assistance from Texas. These court and administrative actions coincide with charges levied by the SEC late last week.
The U.S. Attorney’s Office for the Eastern District of New York arrested Schneider and Lash on Thursday, and Gentile has agreed to surrender, all on related criminal charges. Massachusetts previously filed an administrative complaint against GPB Capital Holdings.
The alleged scheme revolved around the sale of unregistered limited partnership interests in a series of alternative-asset investment funds managed by GPB that invested in the automotive retail, waste management, information technology, and healthcare sectors.
“This joint effort in a complex investigation is typical of the aggressive, cooperative and coordinated actions of state securities regulators and demonstrates the value of state and federal authorities working together to benefit investors nationwide,” said Lisa A. Hopkins, NASAA president and West Virginia senior deputy securities commissioner.
The state complaints allege that from 2013 through late 2018, the defendants allegedly told investors that the GPB funds would pay regular monthly distributions, at an 8 percent annualized rate, that were “fully covered” by cash flow from the portfolio companies. However, the regulators claim that the distribution was actually paid with new investors’ capital.
The defendants are also accused of creating backdated and misleading “performance guarantees” that inflated the reported income of some of the GPB funds.
According to the complaints, the defendants repeatedly diverted and misappropriated fund assets for their own benefit, including to enrich themselves, pay family members, support luxurious lifestyles that included private jet travel, and to buy a Ferrari for Gentile.
The states are seeking court-ordered monetary penalties, investor restitution, disgorgement, and permanent injunctive relief barring the defendants from violating securities laws or participating in the sale or issuance of securities in the future.
Formed in 1919, NASAA is the non-profit association of state, provincial, and territorial securities regulators in the United States, Canada and Mexico. NASAA has 67 members, including the securities regulators in all 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands.