“The Securities and Exchange Commission’s recent move to install an outside monitor to oversee private-equity firm GPB Capital Holdings LLC has prompted some of the firm’s investors and their lawyers to ask what took so long.
GPB Capital’s regulatory filings show that the SEC began probing the New York firm as early as 2018. In September of that year, Massachusetts securities regulators started an investigation of GPB’s sales of funds to Main Street investors, noting that the firm had failed to file required financial statements.
Earlier this month, the Justice Department charged three men, including GPB’s then-chief executive, with fraud in connection with what New York Attorney General Letitia James described as a $1.7 billion Ponzi-like scheme.
A few days later, the SEC requested an emergency court action that would impose a monitor, citing the need to protect thousands of investors with money at risk in four GPB private-equity funds. In a Feb. 8 court filing, the agency said it began trying to place a monitor inside GPB in the summer of 2020, but it was unable to reach an agreement with the firm, prompting it to seek the court’s intervention. […]
The SEC’s Feb. 8 request for such an appointment to the U.S. District Court in Brooklyn, N.Y., came after David Gentile, GPB’s founder and chief executive, stepped down on Feb. 5, pending the outcome of the civil and criminal cases brought against him. The firm named its Chief Financial Officer Rob Chmiel as interim CEO. […]
GPB has denied the claims made against it and has said it intends to defend itself in court. The firm agreed to the SEC’s monitor request on Feb. 11.
GPB investors have lost more than $700 million, Ms. James said in announcing the state’s action against the firm, joining six other states and the federal agencies in suing the firm and the three men described as its creators, including Mr. Gentile, an accountant, and securities broker Jeffry Schneider and car dealer Jeffrey Lash. All three have denied the civil claims and entered not guilty pleas to the criminal charges brought by the Justice Department.
Ms. James said GPB and its principals deceived investors and used their cash in part to finance private jets, including a $90,000-a-year flight attendant, all-terrain vehicle rentals in Florida and a $355,000 Ferrari FF for Mr. Gentile.
Since at least 2016, GPB has used newly invested capital to pay promised 8% dividends to its early investors, state and federal officials have said in court documents. Thousands of the investors have been described as 60 years of age or older. Ms. James said that GPB had fleeced investors.
The firm’s main strategy involved acquiring dozens of auto dealerships and paying investors from their operating profits. But court filings claim that the dealerships weren’t generating the necessary profits, and GPB executives are accused of using phony financial transactions to cover up the shortfalls. Missouri and New Jersey regulators said that by June 2019, GPB valued its portfolio assets at about $1 billion, representing loss of 40% of investor capital.
Authorities said in February they don’t know the value of GPB’s assets because the firm hasn’t filed required audited statements since at least 2018. GPB has also advised investors not to rely upon its financial statements for 2016 and 2017.
In February 2019, the Federal Bureau of Investigation raided the firm’s offices in Manhattan and Garden City, N.Y., while the SEC and several state and city investigative agencies also sought information from the firm
Investor lawsuits began to fly later that year. In one, filed in August 2019 by Florida resident Adam Younker in state court in Manhattan, it notes that the SEC had opened an investigation of GPB by December 2018.
Joseph Peiffer, a lawyer for plaintiffs in one of the federal class-action lawsuits filed against GPB in Texas, said his firm began sounding alarms over the firm in 2019. “It is disappointing that the financial world essentially gave GPB Capital a pass,” Mr. Peiffer said in a recent news release. “After Madoff, there is just no excuse,” he said, referring to the multibillion-dollar Ponzi scheme perpetuated by Bernard Madoff for more than 15 years.”
The Wall Street Journal | Ted Bunker | February 11, 2021
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