The Financial Industry Regulatory Authority (Finra) has sanctioned four Advisor Group 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 in 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 non-disclosure, Finra said, constituted a violation of Finra rules that impose “high standards of commercial honor and just and equitable principles of trade in the conduct of their business.”

GPB Capital, a New York-based alternative asset management firm founded in 2013, served as the general partner for limited partnerships formed to acquire income-producing companies, Finra noted. It said that from 2013 through 2018, GPB Capital launched several limited partnerships that focused on acquiring controlling interests in certain private sector companies. Among the limited partnerships was GPB Automotive Portfolio, which operated automotive dealerships. Automotive Portfolio raised more than $600 million from investors between July 2013 and June 2018, Finra said.

GPB Capital, however, has been beset by regulator investigations and lawsuits filed by clients. 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.

Finra said its investigation into GPB Capital and its affiliates also uncovered that the firm in July 2017 filed a lawsuit in New York City against one of its former partners “who had allegedly failed to acquire certain automotive dealership interests.” Finra said the 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.

In April 2018, Finra said, GPB Capital sent letters to certain individuals, including the four Advisor Group broker dealers, that sold GPB Capital-related investments stating “that GPB Capital was in the process of registering certain classes of securities issued by certain of the limited partnerships, including Automotive Portfolio, with the SEC.”

Finra said Automotive Portfolio was required to file audited financial statements by April 30, 2018. But GPB Caipital stated in the letter that the audited financial statements would be delayed pending completion of a forensic audit. “Specifically, GPB Capital disclosed that it and its auditors ‘determined that it would be prudent to hire a third-party firm to complete a forensic audit in order to endeavor to put [the former partner’s] counterclaims and other allegations to rest’,” Finra said.

Finra said even though the four Advisors Group firms were aware of GPB Capitals’ situation, they sold limited partnership interests in Automotive Portfolio. Finra said FSC Securities made 60 sales with a total principal amount of $4,265,890, earning $298,612 in commissions. Royal Alliance made 32 sales with a total principal amount of $2,450,000, earning $171,500 in commissions. SagePoint Financial made 56 sales with a total principal amount of $4,951,546, earning $343,308 in commissions. Woodbury Financial made 55 sales with a total principal amount of $4,638,928, earning $324,725 in commissions.

“By negligently omitting material facts, FSC Securities, Royal Alliance, SagePoint Financial, and Woodbury Financial each violated Finra Rule 2010,” Finra said.

The individual monetary fines are as follows: FSC Securities agreed to pay a $50,000 fine and partial restitution of $277,612.30 plus interest; Royal Alliance will pay a fine of $35,000 and partial restitution of $171,500 plus interest; SagePoint Financial will pay a fine of $60,000 and a partial restitution of $325,475.66 plus interest; and Woodbury Financial will pay a fine of $55,000 and a partial restitution of $300,224.98 plus interest.

These firms are the latest to be sanctioned by Finra for conduct relating to GPB Capital funds. Among others censured and fined in recent months are Sanctuary Securities (formerly David A. Noyes & Company), National Securities Corporation, Capital Investment Group, United Planners, Dempsey Lord Smith, BD4RIA, and Geneos Wealth Management.