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Instead of securing returns for clients, the founder and CEO of GPB Capital Holdings, David Gentile, and his associates used investments to cover shortfalls and pay for private jets, a Ferrari and other personal luxuries, New Jersey Attorney General Gurbir S. Grewal said.
Victims from the Garden State alone pumped more than $70.4 million into the scheme through illegal limited-partnership deals in private equity funds with GPB Capital Holdings and others, Grewal said Thursday.
They were among 17,000 victims nationwide, nearly a quarter of them senior citizens, taken in what’s being described as one of the largest instances of individual investor fraud since the Bernard Madoff and Robert Allen Stanford scandals.
Despite raising the $1.8 billion, GPB claimed to manage just $239 million as of this past December, a federal Securities and Exchange Commission complaint on file in Brooklyn shows.
All of the investments remain at risk for loss because GPB suspended all redemptions and distributions in 2018, the SEC said.
Federal and state authorities took double-barreled action against the defendants on Thursday.
FBI agents in Boston arrested Gentile, 54, following the unsealing of a federal indictment Thursday in federal court in Brooklyn.
A U.S. District Court judge released him on a $500,000 bond and ordered Gentile to surrender guns he has at his two homes in Manhasset (Long Island) and Clearwater, FL.
Also charged and released were former GPB managing partner Jeffrey Lash, 51, of Naples, FL, and Jeffry Schneider, 52, of Austin, TX, who owned GPB’s placement agent, Texas-based Ascendant Capital.
Each is charged federally by the SEC with securities fraud and conspiracy. Additional wire fraud charges were filed against Gentile and Lash.
Simultaneous actions were also filed Thursday by state authorities in New Jersey, New York, Alabama, Georgia, Illinois, Missouri and South Carolina.
"A strong message"
New Jersey’s Bureau of Securities filed its fraud complaint in state court in Newark against the three men, GPB, Ascendant Capital and New York-based broker-dealer Ascendant Alternative Strategies.
The coordinated action “sends a strong message to all those who would unlawfully enrich themselves at the expense of investors: You will be held accountable,” Grewal said.
The scheme centered on the sale of unregistered, high-commission limited partnership interests in a series of alternative-asset investment funds managed by GPB Capital, the attorney general said.
The funds were targeted to “accredited investors,” whose net worth or income qualified them to participate in private placement securities transactions exempt from SEC and state registration requirements, he said.
From the company’s founding in 2013 through late 2018, the defendants “lured investors in with false and misleading promises” that the GPB Funds would pay an 8% annualized distribution each month, Grewal said.
They assured their investors that these monthly payments were “fully earned” or “fully covered” by the cash flow of portfolio companies in automotive retail, waste management, information technology and health care, he said.
The trio “created fictitious and misleading performance guarantees” that Grewal said “fraudulently inflated the reported income of some of the GPB funds” when they clearly knew they couldn’t deliver.
In classic Ponzi fashion, the defendants used investor money to cover distributions, the attorney general said.
The trio also diverted millions of dollars of investments “to enrich themselves, pay family members, and support luxurious lifestyles at investor expense, including travel by private jet and even the purchase of a Ferrari for Gentile’s personal use,” he said.
A $29,837 American Express bill covered “David’s 50th Bday” with investor money, the SEC complaint alleges.
GPB defends itself
GPB issued a statement saying it has “been cooperating with government investigations and is extremely disappointed by these developments.”
The SEC countered that the firm hasn’t delivered audited financial statements to investors for the LP funds for more than four years and is more than three years delinquent in registering two of them.
Kaitlin Caruso, acting director of New Jersey’s Division of Consumer Affairs, called the behavior “appallingly greedy.”
“This case is a cautionary tale for investors considering ‘alternative’ investments not subject to state or federal registration,” added state Bureau of Securities Chief Christopher W. Gerold.
Gerold urged investors to be extra-careful with “so-called” private securities.
“Although the promise of higher returns can be enticing,” he said, “unregistered securities inherently have greater risk and potential for fraud.”
Gerold's bureau is seeking court-ordered monetary penalties, investor restitution, disgorgement, and permanent injunctive relief barring the defendants from violating the Securities Law or participating in the sale or issuance of securities in the future.
Handling the investigation were Deputy Bureau Chief Amy Kopleton, Enforcement Chief Richard Szuch, and Investigator Irwin Slotnick.
Assistant Attorney General Brian F. McDonough and Deputy Attorneys General Victoria Manning, Michael Eleneski and Paul McEnroe of the Securities Fraud Prosecution Section in the New Jersey Division of Law’s Affirmative Civil Enforcement Practice Group are handling the case in court.
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