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Long Island resident David Gentile, age 57, of Manhasset, and Jeffry Schneider, age 55, of Austin, Texas, were found guilty in federal court on all counts of an indictment charging them with conspiracy to commit securities fraud, conspiracy to commit wire fraud, and securities fraud.
Gentile, the owner and CEO of GPB Capital Holdings, was also convicted on two counts of wire fraud.
The verdict came after an eight-week trial.
When sentenced on Thursday, Oct. 24, Gentile and Schneider, the owner and CEO of Ascendant Capital, face up to 20 years in prison.
The charges related to a years-long scheme to defraud more than 10,000 investors by misrepresenting the source of funds used to make monthly distribution payments and the amount of revenue generated by three of GPB’s investment funds.
GPB, founded in 2013 by Gentile, was a New York-based investment advisor registered with the SEC. GPB was the general partner of several investment funds that raised and invested capital in a portfolio of private equity investments.
GPB worked with Ascendant Capital, a marketing firm founded by Schneider, to market the GPB funds to investors.
Gentile and Schneider worked closely together on the operation and marketing of GPB funds, receiving regular updates as to the funds’ performance.
According to court filings, between August 2015 and December 2018, the two engaged in a scheme to defraud investors and prospective investors in several GPB funds through material misrepresentations and omissions.
Gentile and Schneider, both individually and through employees at Ascendant Capital, assured investors that the funds would provide a monthly distribution payment.
They claimed that these payments would be fully covered by operations, meaning that the companies bought by the funds would be profitable enough to make the payments from their cash flow without relying on the capital raised from investors.
In reality, when the funds’ performance lagged, the defendants tried to disguise the shortfall with fraudulent, back-dated documents and paid investor distributions out of investor capital.
Ultimately, investor capital was used to pay for a significant portion of the distributions made to investors.
Gentile and Schneider knew that the GPB Funds were underperforming and authorized the fraudulent distribution payments, federal prosecutors said.
“The jury found that the defendants lied to investors about the health of their funds and the source of fund distribution payments, all while they were fraudulently making those distribution payments with investor capital to maintain the appearance of successful portfolio companies,” stated Breon Peace, United States Attorney for the Eastern District of New York.
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