The SEC has just charged GPB and its three managers of running a complex $1.7 bn ponzi scheme, which defrauded 17,000 investors, 4,000 of them seniors. The managers, David Gentile, Jeffrey Lash and Jeffry Schneider, were living large – properties, luxury travels, trips, planes and Ferraris, transfers to personal bank accounts…

GPB Capital is a New York-based alternative asset management firm founded in 2013, which focuses on acquiring private companies in various industries, including the waste management and the automotive retail sectors. It has raised more than $1.8 billion in investor equity through various private placement offerings.

Many red flags

The case has many red flags, and the story went from rumors into a free fall:

• Promises of consistent and high returns, described as ‘income products’.
• Returns, which turn out to be uncorrelated to market fluctuations.
• Aggressive marketing strategies, with large commissions ($165m) paid to capital raisers – up to 11.75% commissions, of which 7% to 9% went to the recommending brokers (63 of them, including Royal Alliance Associates, Sagepoint, FSC Securities, Woodbury Financial Services…).
• Continued capital raising, which continued, despite the firm’s difficulties in deploying the capital.
• Phone calls and emails from investors never answered.
• Suddenly interrupted capital raising (2018),
• Decreased distributions, after the firm stopped raising capital.
• The resignation of an auditor (November 2018), missed financial statement filing even after a year of delay (April 2019), disclaimed auditor reports,
• Litigation between partners, one accusing the others of running a complex Ponzi.
• Investigations by New York’s AG (Summer 2018).
• The clearing firm National Financial service, withdrawing GBP from its platform, declaring it has “no clear value”.
• Litigations started against the firm in mid 2019, alleging misconduct going back to 2014: one, two, three, four, five…
• Prosecution by authorities, of which Massachusetts’ AG (May 2020) FINRA, SEC and the FBI (March 2019).
• GPB’s investments suddenly losing in value (up to 73% in value)
• Indictment of the Chief Compliance Officer, Michael Cohn (October 2019). Mr. Cohn left the SEC’s team investigating GBP, to join GBP!
• The arrest of the CEO, David gentile, who faces 20 years in prison (Madoff got 150 years).
• Allegations of threats and retaliations against a whistleblower.
• The New York attorney General is now also suing GPB and its three managers for defrauding its investors by $700 m.
• Numerous states, from Alabama to New Jersey, are now following suit.

According to the latest from ADV (June 2019), the firm claimed to manage only $239m… despite raising $1.8 bn.

Ponzi’s are definitely not a thing of the past…

Credits

Credits to Bruce Kelly at Investment News for many well researched articles, of which:

And to Jonathan Stempel at Reuters: