The Financial Industry Regulatory Authority last week fined another broker-dealer, Nashville-based Center Street Securities Inc., for selling scandal-ridden GPB Capital Holding private placements without disclosing to customers that audited financial statements on their investments had not been filed on time with the SEC.
Center Street, which employs about 75 registered representatives in 56 branch offices across the country, agreed to a public censure and to pay a $70,000 fine and partial restitution of $89,652.50 without admitting or denying guilt, Finra announced December 29.
Finra said Center Street “negligently failed” to tell 20 investors in two offerings related to GPB Capital Holdings LLC, a New York-based alternative asset management firm, that the issuer failed to make timely required filings with the Securities and Exchange Commission regarding the limited partnership’s financial health.
While Center Street received letters from GPB Capital, which acted as a general partner for limited partnerships formed to acquire income-producing companies, stating that the firm had not filed forensic financial audits, Center Street went ahead and sold $1,206,000 worth of limited partnerships to 20 customers between May 4 and June 28, 2018, anyway, Finra said in the settlement.
Center Street received $98,727.50 in commissions from the sales and has settled two claims with customers previously, Finra added.
“In connection with these 20 sales, Center Street representatives did not inform the customers that the partnerships in question, Automotive Portfolio and Holdings II had not timely filed their audited financial statements with the SEC or the reasons for the delay. The delay in filing audited financial statements and the reasons for it was material information that should have been disclosed,” Finra said in the settlement.
Center Street did not immediately respond to a request for comment.
Finra said its investigation into GPB Capital and its affiliates also uncovered that the firm filed a lawsuit in New York City in July 2017 against one of its former partners “who had allegedly failed to acquire certain automotive dealership interests.”
The GPB Capital partner “asserted various counterclaims against GPB Capital and alleged that GPB Capital had falsified financial statements to conceal that GPB Capital was defrauding its investors. GPB Capital denied the former partner’s allegations and the litigation remains pending,” Finra noted.
GPB Capital itself has been beseiged by multiple regulator investigations and lawsuits filed by customers. In February 2021, the Justice Department and the SEC charged the firm and its founder, David Gentile, CEO Jeffry Schneider, and former managing partner, Jeffrey Lash, with engaging in a Ponzi-like scheme that raised about $1.7 billion from investors.
In December, Finra sanctioned four broker-dealers for failing to disclose to investors that audited financial statements on funds they sold from scandal-ridden GPB Capital Holdings had not been filed on time with the SEC. The firms, FSC Securities, Royal Alliance, SagePoint Financial and Woodbury Financial agreed to be censured, and to pay fines totaling $200,000 and restitution in the amount of nearly $1.1 million, according to Finra.
Finra said that between May and June 2018 the four firms “negligently failed” to tell investors that GPB Capital had failed to timely make required financial filings with the SEC, including filing audited financial statements, the industry regulatory organization said.