The U.S. Department of Justice announced the indictment Thursday of three individuals affiliated with GPB Capital, a New York-based private placement shop, with securities fraud, wire fraud and conspiracy in a scheme that raised over $1.7 billion from investors. GPB’s owner and CEO David Gentile, Jeffry Schneider, owner of GPB’s placement agent Ascendant Capital, and Jeffrey Lash, a former managing partner at GPB, have been arrested, each facing up to 20 years in prison.
In a parallel action, the Securities and Exchange Commission has also charged GPB Capital and Ascendant, which marketed securities issued by GPB, with fraud. The three men are also named in the SEC’s complaint, which claims they were running a Ponzi-like scheme. The SEC also charges GPB with violating whistleblower protection laws.
Seven state securities agencies also filed regulatory actions against GPB, including Alabama, New York and New Jersey, which filed civil complaints. Georgia, Illinois, Missouri and South Carolina launched administrative proceedings with help from Texas.
The SEC claims that Gentile and Schneider lied to investors about where the 8% annualized distribution payments were coming from, telling investors the money came from profits generated by GPB’s portfolio companies. In reality, they used investor funds to pay portions of the distribution payments, the SEC said. The executives allegedly manipulated financial statements to conceal their wrongdoing.
GBP and Ascendant also misrepresented the fees and compensation they were were receiving, the SEC claims. Further, the firm had language in termination and separation agreements that prevented individuals from coming forward about the violations.
“As alleged in our complaint, the defendants told investors that they would be paid distributions from profits of the portfolio companies when, in reality, many of the payments were being made from the investors’ own funds,” said Richard Best, director of the SEC’s New York Regional Office. “This action shows our continued pursuit of those who deceive investors and conceal their misconduct to reap profits for themselves.”
“GPB has been cooperating with government investigations and is extremely disappointed by these developments," said Nancy J. Sterling, a spokeswoman for GPB, in an emailed statement. "GPB denies these allegations and intends to vigorously defend itself in court where, for the first time, the firm will be able to present significant evidence in its favor. GBP remains confident that the firm acted in good faith during many years of managing funds for investors. GPB will continue to work toward increasing asset values and cash flows, while ensuring that the operating companies, their employees, and their commercial partners continue to deliver excellent value to our customers, and ultimately to our investors.”
GPB also faces several pending class action lawsuits, as well as other complaints against it, alleging it’s a Ponzi scheme. One law firm, Peiffer Wolf Carr Kane & Conway, filed three dozen FINRA arbitration claims last summer across 12 brokerage firms that invested client money in GPB. The law firm also has a pending class action lawsuit against the firm in Texas, claiming Ascendant brokers made over $800,000 in commissions in a single month from GPB.
Peiffer estimates that GPB was sold to over 2,000 investors, with losses of up to $1.8 billion, and that some 60 brokerage firms participated nationwide.
“It’s a good day for the investors of GPB because this is proof that people are paying attention to their plight,” said Jason Kane, partner at Peiffer Wolf Carr Kane & Conway. “They were victimized by what now the U.S. government and a whole lot of state governments agree was a Ponzi scheme.”
One arbitration claim against a rep with J.P. Turner who recommended GPB was recently ruled false, and no award was given. In another arbitration claim against Arete Wealth, the panel awarded the client some $514,000 in damages, interest, costs and attorneys’ fees. In yet another arbitration filed against Crystal Bay Securities, which sold GPB products, the panel awarded the investor more than $1.3 million in damages. In an arbitration against broker/dealer Geneos Wealth Management over sales of GPB, the panel ruled the investors’ claim to be “factually impossible or clearly erroneous.”