GPB and automakers | Portland Press Herald | J. Craig Anderson | December 14, 2019
GPB Capital’s problems have been adding up since 2017. The latest issue concerns the firing of Prime Automotive Group CEO, David Rosenberg, in September. The move caught the attention of multiple automakers:
“Toyota and Volkswagen are threatening to revoke their franchise agreements with two Prime Motor Group auto dealerships in Saco as a result of alleged breaches of contract stemming from the ouster of former Prime Motor CEO David Rosenberg.
Both auto manufacturers have issued letters to the dealership group’s owner, New York-based GPB Capital Holdings, saying the company violated the agreements by replacing Rosenberg – son of the late Ira Rosenberg, a colorful and longtime Maine auto dealer – without their prior approval. They demanded an explanation for GPB Capital’s actions and said the company may have to sell the dealerships or lose its franchise rights.
Prime Volkswagen and Prime Toyota in Saco are part of a larger group of GPB Capital-owned dealerships that are under threat of losing their franchise rights as a result of Rosenberg’s ouster, according to trade publication Automotive News. GPB Capital, which is under federal investigation for alleged financial fraud, has received franchise termination threats for a dozen dealerships affiliated with Volkswagen, Toyota, Subaru and Audi, including the two dealerships in Saco, it reported.
Prime Motor is a subsidiary of Massachusetts-based Prime Automotive Group, which represents 56 dealerships organized into five regional groups across eight states, including nine dealerships in Maine. Prime Automotive was created in 2017 when GPB Capital purchased a majority ownership stake in Prime Motor and merged it with another dealership chain.
If the franchise agreements are revoked, Prime Volkswagen would no longer be able to operate as a Volkswagen dealership, and Prime Toyota would no longer be able to operate as a Toyota dealership. The dealerships could sign new agreements with other manufacturers, but they wouldn’t be able to continue operating as they are now. Calls to the two dealerships’ general managers were not returned Friday.”
GPB and the automakers’ letters
The news of the automakers getting involved with David Rosenberg and GPB broke because they are all now mentioned in an amended lawsuit that was filed by David Rosenberg. The previously ousted Prime Automotive Group CEO is seeking to be reinstated.
“Copies of the auto manufacturers’ letters containing the franchise termination threats were included in a recent court filing by Rosenberg as part of an ongoing lawsuit. Rosenberg is fighting in court to be reinstated as CEO of the New England auto dealership chain owned by GPB Capital, an investment fund management group, which fired him in September.
Court documents show that Virginia-based Volkswagen Group of America Inc. wrote a letter to GPB Capital dated Sept. 18 in which it said Rosenberg’s termination violated the company’s dealer agreement, which gives dealers the right to sell new Volkswagen vehicles.
“Assuming GPB Capital terminated your employment and relieved you of all your responsibilities and duties for the dealership, this occurred without prior notice to, or approval from, (Volkswagen),” it said in the letter, addressed to Rosenberg. “(Volkswagen) demands a detailed and complete explanation as to the circumstances surrounding these events.”
The auto manufacturer said it only allows executives listed in the dealer agreement to manage its franchises, and that replacing any executive without Volkswagen’s prior consent “constitutes a serious breach of the dealer agreement for which the remedy of termination is available.”
Volkswagen also acknowledged the ongoing U.S. Securities and Exchange Commission and FBI investigations into GPB Capital, and the company’s admission that the value of its investment funds has plummeted, and said those issues raise “serious questions with respect to the reputation and financial standing of the dealer’s owners.”
It demanded a detailed response from GPB Capital explaining its actions and said it reserves the right to issue a notice of default or termination of the dealer agreement.
Court documents show GPB Capital received a similar letter from Texas-based Toyota Motor North America Inc. on Oct. 2, which stated the company was “surprised and disappointed” to learn Rosenberg had been fired.
Like Volkswagen, Toyota told GPB Capital that it never agreed to accept Rosenberg’s replacement, and that its dealer agreement for the Toyota franchises requires prior approval for any changes in the dealerships’ executive leadership.
Toyota gave GPB Capital six months to “cure” the breaches of contract, sell the dealerships or face possible termination of the dealer agreement.
“Toyota does not concede that the breaches outlined below are curable, as it appears several of them may not be capable of being cured and will require divestiture,” it said.”
GPB had many problems before the automakers’ warnings
Currently, the amended complaint that includes the automakers is only one of the many problems GPB is facing. FBI and SEC investigations are just a part of the bigger picture involving an alleged Ponzi Scheme that made victims of 1000s of investors – many of them, like Millicent Barasch, are represented by Peiffer Wolf and Meyer Wilson.
“GPB Capital has been under investigation by state and federal authorities for several months for potential securities law violations. In April, Automotive News reported that the FBI and a New York City agency had searched the company’s offices in late February. GPB Capital has acknowledged facing inquiries by the SEC.
In August, a group of GPB Capital investors filed a class-action lawsuit against the investment firm for failing to provide timely and accurate financial statements, among other allegations.
In September, a group of lawyers said GPB Capital was at the center of a coming “avalanche” of arbitration cases against brokers that pushed unsuitably risky investments in its funds on retirees and unsophisticated investors in exchange for commissions that were much higher than the industry standard.
In October, a former top official at GPB Capital was indicted on charges of obstructing a federal investigation into allegations that the New York investment firm has been running an illegal Ponzi scheme.
Michael S. Cohn, GPB Capital’s former managing director and chief compliance officer, was removed from his position in the wake of the indictment, the company has said. Cohn is accused of using his former position as an investigator at the SEC, a job he allegedly left just days before going to work for GPB Capital, to access sensitive information about the investigation and share it with GPB Capital employees.
In November, a GPB Capital investor filed a federal lawsuit accusing the company of operating illegally by paying dividends to investors out of their own invested funds.
In a legitimate investment fund, money from investors is used to purchase businesses, real estate or securities, and the profits generated from those purchases are used to pay dividends to the investors. In an illegal Ponzi scheme, the investment principal itself is paid out as dividends until the scheme’s operator runs out of money and shuts it down, leaving investors with a fraction of their original investment.
The lawsuit is seeking class-action status, alleging the company misled at least 2,000 investors into handing over a total of more than $1.8 billion. The plaintiff, Florida resident Millicent Barasch, invested more than $650,000 in GPB Capital funds, including $150,000 in its automotive fund, the lawsuit states.”
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