Between July 2013 and June 2018, limited partners invested $675 million into GPB Automotive Portfolio, LP, which was sold as a private placement offering by broker-dealers and registered investment advisory firms across the country. Financial advisors, who received large commissions for selling limited partnership units of GPB Automotive, lured investors into this high-risk and illiquid security by emphasizing a high rate of return and monthly distributions. Unfortunately for investors, distributions have not been paid since December 2018.
With the recent announcement that GPB Automotive Portfolio, LP agreed to sell Prime Automotive for $880 million, limited partners have been wondering what that means for them.
Below, we delve into GPB Automotive LP’s latest quarterly filing with the SEC to look for answers.
GPB Automotive Portfolio, LP’s 10-Q Filing (9/30/2021)
On November 15, 2021, GPB Automotive Portfolio, LP filed its Form 10-Q with the SEC for the third quarter of 2021, ending on September 30, 2021.
The Sale of Prime Automotive and Unwinding Its Business:
- On September 12, 2021, GPB Automotive agreed to sell Prime Automotive to Group 1 Automotive, Inc. for $880 million.
- The deal includes the sale of GPB Automotive’s remaining 30 car dealerships and three collision centers located in the Northeast of the United States.
- The sale’s closing is expected to be substantially completed by the end of 2021, subject to various closing conditions and the approval of the court-appointed monitor overseeing GPB.
- Once the sale is complete, GPB Automotive will no longer own any car dealerships.
- According to a press release issued by Group 1 Automotive, Inc., the Prime Automotive dealerships generated $1.8 billion in annual revenues in 2020.
- Growth through acquisitions had been a key component of GPB Automotive’s long-term strategy. For the three and nine months ended September 30, 2021, GPB Automotive did not acquire any dealerships.
- For the three months ended September 30, 2021, and 2020, GPB Automotive generated revenues of $519.8 million and $713.5 million, respectively. This represents a decrease of $193.7 million, or 27.1%, in total revenues across all revenue streams. The decrease in total revenue across all revenue streams was primarily attributed to GPB Automotive’s disposition of three of its dealership groups, FX Caprara, Ron Carter, and KRAG, in September and October 2020, which accounted for revenue reductions of $36.5 million, $48.8 million, and $65.3 million, respectively totaling $150.6 million. In addition, there was a $42.4 million decrease revenue attributed to GPB Automotive’s existing dealerships, as a result of lower vehicle inventory related to the COVID-19 pandemic supply chain shortages.
Raising Capital, Debt, and Legal Expense Reserves:
- In 2018, GPB Automotive primarily relied on raising capital from Limited Partners in the amounts of $185.4 million. Capital raising activities were suspended in June 2018.
- After that, GPB Automotive relied primarily on cash on hand, cash flows from operations, floorplan lines of credit, and borrowings under its credit facilities as the main sources for liquidity.
- As of September 30, 2021, the maximum financing available under GPB Automotive’s financing agreements (for new vehicles and used vehicles combined) was $206.9 million.
- As of September 30, 2021, GPB Automotive had total liabilities of $461 million.
- In addition, GPB Automotive had an undisclosed amount of money set aside for the costs of the numerous legal actions (consisting of an SEC civil matter, a federal criminal case against GPB’s founder and other former principals, two state-initiated matters, and at least 20 other civil legal actions).
- With respect to all significant litigation and regulatory matters facing GPB Automotive, its general partner, and its dealerships, GPB Automotive has considered the likelihood of an adverse outcome. It is possible that GPB Automotive could incur losses pertaining to these matters that may have a material adverse effect on its operational results, financial condition, or liquidity in any future reporting period. The general partner is currently paying legal costs associated with these actions for itself and certain indemnified parties. GPB Automotive expects to provide partial reimbursement to the General Partner as required by various agreements or governing law, but the amount is not reasonably estimable at this time.
- If the legal expense reserves are insufficient to cover the actual costs of the extensive legal actions, GPB Automotive may seek to recoup distributions that have already been paid to investors.
- For the nine months ended September 30, 2021, GPB Automotive recorded $3.7 million of legal indemnification expenses.
- GPB agreed to pay former Prime Automotive majority owner David Rosenberg $30 million to settle litigation and arbitration claims. The original lawsuit was filed in July 2019, when Mr. Rosenberg and Rosenberg family trusts filed a lawsuit in Massachusetts Superior Court against GPB, alleging that GPB retaliated against Mr. Rosenberg after he tried to address alleged fraudulent activity at GPB.
Restrictions on GPB Automotive’s Ability to Pay Distributions to Investors:
- The aforementioned financing agreements include covenants that limit GPB Automotive’s ability to make certain payments, including distributions to shareholders.
- Additionally, GPB Automotive disclosed to investors that it might delay or withhold distributions until legal reserves are no longer needed or the escrow period expires.
The Impact of the Sale of Prime Automotive
The sale of Prime Automotive will generate $880 million in cash for GPB Automotive. At first blush, that would seem to be a positive development for limited partnership investors. However, a closer look reveals that the forecast remains foggy for limited partners of GPB Automotive.
For starters, when GPB Automotive agreed to sell Prime Automotive, it also agreed to sell its primary revenue stream. According to reports, the Prime Automotive dealerships generated $1.8 billion in annual revenues in 2020.
Owning and operating retail automotive dealerships was GPB Automotive’s primary business model. A key component of its long-term strategy was to grow through acquisitions. Over the past nine months, GPB Automotive has been selling its dealerships instead of acquiring new car dealerships. Once the Prime Automotive sale is complete, likely before the end of the year, GPB Automotive will no longer own any car dealerships. GPB Automotive appears to be unwinding its business.
As of September 30, 2021, GPB Automotive had total liabilities of $461 million. If the business is indeed unwinding, the sale proceeds from the Prime Automotive deal would likely be used to pay off the partnership’s financial obligations.
The use of the remaining proceeds, including whether investors would receive back a portion of their principal investments, remains unclear. We know that the partnership is subject to significant litigation and regulatory matters and must pay a portion of the legal expenses for these proceedings. As disclosed in the latest SEC filing, GPB Automotive have considered the likelihood of an adverse outcome and has considered the possibility that GPB Automotive could incur losses pertaining to these matters that may have a material adverse effect on its operational results, financial condition, or liquidity in any future reporting period.
With potentially years of litigation ahead, GPB Automotive investors may be discouraged. However, they are not without options.
What Can GPB Automotive Investors Do?
GPB Automotive investors should immediately contact a securities arbitration law firm to review their legal rights.
Investors who have purchased GPB Automotive through a broker or brokerage firm have successfully recovered investment losses by filing securities arbitration claims.
For example, in August 2021, a FINRA arbitration panel in New York, New York, ruled in favor of a brokerage customer that invested in GPB Automotive Portfolio LP and GPB Waste Management LP at the recommendation of his financial advisor at Hightower Securities, LLC.
The arbitration panel ordered Hightower Securities, LLC to refund $163,201 to the customer in exchange for returning the limited partnership interests, essentially making the customer whole. The customer had purchased the limited partnership interests for $170,000 and had previously received $6,799 from the investments as a return of capital.
Brokers and brokerage firms are obligated to make suitable recommendations in their customers’ best interests. Among other things, the broker must have a reasonable basis to believe that a recommendation is suitable for a customer based on the particular customer’s investment profile. In addition, the broker and firm must have a reasonable basis to believe, based on reasonable diligence, that the recommendation is suitable for at least some investors. FINRA has stated that “reasonable diligence” means that the firm’s and/or broker’s due diligence “must provide the firm or associated person with an understanding of the potential risks and rewards of the recommended security or strategy.”
Brokerage firms may have failed to conduct reasonable diligence into the GPB funds before selling the private placement offerings to their customers. The firms’ compliance departments likely ignored or missed many red flags such as inflated revenue reports, fabricated profits, kickbacks, and investor funds being funneled into the pockets of GPB’s principals.
Iorio Altamirano LLP is investigating claims on behalf of defrauded investors who were victims in the GPB funds scheme. The GPB funds were marketed to independent broker-dealers and investment advisers who would, in turn, sell the GPB funds to their retail investors.
Investors that have purchased any of the following private placement investments issued by GPB Capital should contact securities arbitration law firm Iorio Altamirano LLP for a free and confidential consultation and review of their legal rights:
- GPB Holdings, LP / GPB Holdings Qualified, LP.
- GPB Automotive Portfolio, LP.
- GPB Holdings II, LP.
- GPB Waste Management, LP.
If you lost money in the GPB funds, you might have a claim.
How to Recover GBP Investment Losses
Iorio Altamirano LLP is a securities arbitration law firm located in New York, NY. We represent investors nationwide and vigorously pursue FINRA arbitration claims on behalf of investors to recover investment losses.
We have nearly 20 years of combined experience as securities arbitration lawyers and have helped investors recover investment losses in over 1,000 cases. Our firm will file a FINRA securities arbitration claim on your behalf on a contingency fee basis to try to recover your losses. If we do not obtain a recovery, you do not owe us a legal fee.
If you have lost money on the GPB funds, contact securities arbitration lawyers August Iorio and Jorge Altamirano of Iorio Altamirano LLP at august@ia-law.com, jorge@ia-law.com, or toll-free at (855) 430-4010 for a free and confidential consultation and review of your legal rights.