GPB Investors Encouraged to File Arbitration Claims in 2022 to Preserve Legal Rights

Investors who purchased GPB funds in 2016 through a broker-dealer need to act now to preserve their legal rights. Failure to file an arbitration claim may prevent recovery of investment losses. Time is running out. GPB investors should act in 2022.

Key Takeaways:

Investors can potentially recover investment losses by filing claims against broker-dealers or investment-advisory firms that sold GPB private placement offerings for large commissions.
Through 2021, GPB Capital investors have won over $2.4 million in monetary awards in 10 out of 12 (over 83%) arbitration claims that have proceeded to a final hearing.
Investors have six years to file arbitration claims; Investors who purchased any GPB private placement offerings in 2016 through a broker-dealer need to act now to preserve their legal rights.
The recent sale of assets by GPB Automotive Portfolio, LP, does not guarantee significant distributions for investors.
Investors who file claims against broker-dealers or investment advisory firms for recommending and selling the GPB Capital private placement offerings are still entitled to future distributions from GPB if any are made; the amount of any future distributions remains uncertain.

GPB Fraud and Brokerage Firm Liability

GPB Capital Holdings LLC (“GPB Capital”) is a private-equity firm based in New York. GPB Capital was founded in 2013 and served as the general partner of several investment funds, including GPB Holdings, LP, GPB Holdings II, LP, GPB Automotive Portfolio, LP, GPB Waste Management, LP, and GPB Cold Storage, LP.

In February 2021, the SEC charged GPB Capital, Ascendant Capital, and Ascendant Alternative Strategies with running a Ponzi-like scheme that raised roughly $1.8 billion from securities issued by GPB Capital. In addition, David Gentile, the owner, and chief executive of GPB; Jeffry Schneider, the owner, and CEO of Ascendant Capital LLC; and Jeffrey Lash, a former GPB managing partner, are all facing criminal and civil fraud charges. The SEC believes that as many as 17,000 retail investors nationwide have been defrauded.

GPB Capital raised capital from private retail investors through private placement offerings that were sold by approximately sixty broker-dealers and investment advisory firms across the country. In total, the GPB funds have collectively raised over $1.8 million in capital from investors. While GPB Capital and financial advisors used promises of steady, 8% dividends from investment gains to lure investors, “a significant portion of GPB’s distributions were paid directly from investor funds,” according to numerous civil and criminal complaints. There are serious concerns that broker-dealers may have failed to conduct reasonable due diligence about GPB Capital and the GPB funds.

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 GPB Capital and the GPB funds before selling the private placement offerings to their customers. The firms’ compliance departments likely ignored or missed many red flags.

For example, according to the SEC’s complaint, beginning in August 2015, GPB Automotive Portfolio LP began to use investor funds to make distributions to other investors. However, GPB Automotive Portfolio’s private placement memorandum stated that distributions would be made from the limited partnership’s operations. The private placement memorandum was updated in June 2016 to disclose that the limited partnership may use investor capital to make distributions, but it had “no present plans to do so,” despite already doing so. These statements were false and misleading. At the time the PPM was issued, GPB Automotive Portfolio had used over $2.5 million of investor capital to pay distributions.

The false statements by GPB Capital were also discoverable by brokerage firms who sold the private placement offering to retail investors for large up-front commissions. For example, in 2016, GPB Automotive Portfolio’s financial reports revealed that the fund made $14.3 million in distributions to investors; however, it recorded only $5.4 million of income from operations. The significant gap between the amount in distributions paid out to investors and the entity’s operating income should have been a huge red flag to brokerage firms. Instead, the red flag was ignored, and GPB Automotive Portfolio was sold to retail investors by brokerage firms and investment advisory firms. This is just one example of how brokerage firms may have failed their due diligence obligations.

As a result of due diligence failures, or other sales practice violations, GPB investors may have legal claims against brokerage firms or investment advisory firms.

Investors Urged to File Arbitration Claims Within Six Years of the Purchase Date

Investors who have purchased GPB Automotive, GPB Holdings, GPB Holdings II, or GPB Waste Management through a broker or brokerage firm have successfully recovered investment losses by filing securities arbitration claims.

Through 2021, GPB Capital investors have won over $2.4 million in monetary awards in 10 out of 12 (nearly 83%) arbitration claims that have proceeded to a final hearing. According to public records, many other claims filed against broker-dealers who sold the private placements offered by GPB Capital have been settled for monetary compensation.

GPB investors should immediately contact Iorio Altamirano LLP, a securities arbitration law firm, to review their legal rights.

Securities arbitration disputes are litigated through FINRA’s Dispute Resolution Services. Investors should be aware that according to FINRA’s procedural rules, claims are not eligible for submission where six years have elapsed from the occurrence or event giving rise to the claim. Brokerage firms routinely argue that the “occurrence or event giving rise to the claim” is the purchase date of the GPB fund. Although there may be counter legal and factual arguments, investors are urged to file claims within six years of purchasing the GPB funds. Accordingly, GPB investors who purchased their limited partnership units in 2016 or 2017 should not delay in contacting a securities arbitration law firm to review their legal rights and file an arbitration claim to preserve their rights.

Investors who have purchased limited partnership units of the GPB funds before 2016 should also immediately contact our securities arbitration law firm to review their legal rights. There may be legal arguments or factual circumstances that would still allow for the filing of a claim. Investors are urged not to delay any further.

Filing an Arbitration Claim Does Not Preclude an Investor from Receiving Future Potential Distributions

When an investor files a claim against a broker-dealer or investment advisory firm alleging sales practice violations or due diligence failures, the investor is still entitled to receive future distributions from the GPB funds, if any are made. The investor still owns the security.

Several of the funds, including GPB Automotive, have not paid distributions to limited partners since 2018. Despite selling significant assets and raising capital, the future of the GPB funds remains uncertain.

For example, GPB Automotive Portfolio, LP recently sold all of its remaining car dealerships for $880 million in what appears to be an unwinding of the business. However, 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 the SEC civil matter, a federal criminal case against GPB’s founder and other former principals, several state-initiated matters, and at least twenty other civil legal actions).

GPB Automotive Portfolio, which an independent court-appointed monitor is now overseeing, has disclosed that it has considered the likelihood of an adverse outcome in the numerous legal proceedings and expects to provide partial reimbursement to GPB Capital for legal expenses.

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.

In December 2021, the founder and former CEO of GPB Capital Holdings LLC, David Gentile, sued GPB Capital, seeking to make GPB Capital cover the legal costs for his defense against criminal and civil securities fraud. Separately, Mr. Gentile is asking for court-supervised mediation to obtain a distribution of more than $5 million to cover his personal tax liability from last year.

Accordingly, due to GPB Automotive Portfolio’s significant liabilities ($436 million) and the likelihood that it will be obligated to pay a significant amount of legal expenses for years to come, many investors do not expect to receive much, if any, of their capital back. Worse, their investments remain illiquid, as there is no known secondary market for investors to sell their limited partnership units.

What Can GPB Investors Do?

Iorio Altamirano LLP, a leading securities arbitration law firm based in New York, NY, is investigating claims on behalf of defrauded investors who were victims in the GPB funds scheme. Investors who have purchased GPB Automotive, GPB Holdings, GPB Holdings II, or GPB Waste Management through a broker or brokerage firm have successfully recovered investment losses by filing securities arbitration claims.

Our law firm pursues FINRA arbitration claims nationwide on behalf of investors to recover financial losses arising out of wrongful conduct by financial advisors and brokerage firms.

Iorio Altamirano LLP is actively investigating claims on behalf of GPB investors who purchased the security through a broker-dealer or registered investment advisor, including:

About Iorio Altamirano LLP

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.