GPB Capital Holdings, Fraud? | Vernon Litigation Group
Another day, another ‘alleged’ Ponzi Scheme
Vernon Litigation Group’s securities attorneys continue their investigation into GPB Capital Holdings as the firm is now subject to an FBI probe in addition to investigations by the SEC, FINRA and the State of Massachusetts.
GPB Capital Holdings is a New York based ‘alternative’ asset management firm that has raised $1.5 billion dollars in capital acquiring income-producing private companies.
GPB Capital Holdings is no stranger to discrepancies. Last year the firm notably ceased to raise capital, lost an auditor and more publicly, is involved in a lawsuit with former business partner Patrick Dibre. GPB Capital Holdings complained that Dibre reneged on the sale to GPB Capital Holdings of certain auto dealerships causing the fund to lose $40 million according to GPB’s complaint. Dibre counterclaimed that GPB Capital Holdings is nothing more than “a very complicated and manipulative Ponzi scheme”. Dibre also claims that GPB Capital Holdings made large payments to investors based on bogus financial data, used an alternative an undisclosed investment strategy to produce dividends for investors and falsified financial statements to conceal its fraudulent activities. Then it was reported that the Financial Industry Regulatory Authority Inc. (FINRA) and the Securities and Exchange Commission (SEC) launched investigations in to GPB Capital Holdings. Furthermore, as of March 2019, GPB Capital Holdings is now being investigated by the FBI, which is potentially bad for both the brokers who recommended and sold GPB’s offerings and the investors who invested in them.
Brokers were highly motivated to sell the GPB Funds as they earned an upward of an 8% commission. Subsequently, the brokers received more than $100 million in commissions by selling private placements¹ in which there were supposedly nine filed and close to six thousand investors resulting in more than a billion dollars in capital being raised. These sky-high commissions gave the brokers incentive to really push investors to invest in GPB with guaranteed high returns. There are currently 10 portfolio companies in question:
-GPB Automotive Portfolio, LP
-GPB Cold Storage, LP
-GPB Eurobond Finance PLC
-GPB Holdings II, LP
-GPB Holdings, III, LP
-GPB Holdings Qualified, LP
-GPB Holdings, LP
-GPB NYC Development
-GPB Scientific, LLC
-GPB Waste Management, LP formerly: GPB Waste Management Fund, LP.
Brokers have the responsibility to adhere to the rules and the regulations, to be transparent, be both ethically and morally compliant and advise their investors on investments suitable for their goals. In addition to the above, they have the responsibility to conduct due diligence. Due diligence includes an investigation into the investment’s properties including its benefits, risks, tax consequences, issuer, history, and other relevant factors. Appropriate due diligence would identify that an alternative investment’s high costs, illiquidity, and conflicts of interests that would make the investment not suitable for investors and in this case, due diligence on private placements to ensure they are not fraudulent.
¹ A private placement is an offering of unregistered securities to a limited pool of investors. In a private placement, a company sells shares of stock in the company or other interest in the company, such as warrants or bonds, in exchange for cash. Private placements are regulated by a series of U.S. Securities and Exchange Commission rules known as Regulation D, or Reg D. Under Reg D, companies can issue varying amounts of securities based on the type of investor they are selling them to—accredited or non-accredited investors—without registering those securities with the SEC. An accredited investor is a person—or a married couple—with a net worth of at least $1 million (excluding the value of the primary residence), or an individual that earned an income of at least $200,000, or more than a combined $300,000, in the case of married couples, for each of the last two years, and reasonably expects the same for the current year. The market for private placements is significant. Last year, U.S. private placements raised $56 billion, according to data compiled by Ernst & Young. Over the same time period, IPOs raised $85 billion.
Private Placements, Explained. (2015, July 01). Retrieved from http://www.finra.org/investors/private-placements-explained
Written by Brooke Sandoval-Banker