“To existing and prospective investors in the limited partnership funds, GPB Capital projected an aura of success, touting that it consistently made an 8% annualized distribution payment to investors, as well as periodic ‘special distributions’ ranging from 0.5 to 3%,” the SEC said in a February 2021 lawsuit against the company in New York federal court. “In reality, GPB Capital used investor funds to cover the shortfall between funds from operations of the portfolio companies and the amount needed to make an annualized 8%.”

GPB Capital funds raised capital by selling limited partnership interests to retail investors. It primarily raised capital through Ascendant, whose employees contacted brokers and RIAs. The firm was ordered into receivership by the SEC in June.

This year alone, several firms have been firms have been pinched by Finra for selling investments in GPB to clients without telling them entire story about delayed financials related to some of the funds.

Sanctuary Securities in Indianapolis (formerly known as David A. Noyes & Co.) was fined $60,000 in August of this year for failing to tell eight investors in 2018 that audited financials on two GPB funds had not been filed on time when the brokerage sold the clients $600,000 in private placements, deals that netted Sanctuary/Noyes $48,000 in commissions. Capital Investment Group of Raleigh, N.C., was fined $50,000 the same month for nine similar sales totaling $860,000 in placements that generated $68,800 in commissions.

In March, BD4RIA, a firm in Fort Worth, Texas, was fined $45,000 by Finra and ordered to pay partial restitution of $45,000 after selling $500,000 worth of partnership interests in one fund, GPB Holdings II LP, to seven customers without telling six of the clients that the fund had not filed audited financial statements on time. A few days later, Finra fined Geneos Wealth Management $150,000. Though that case involved an unrelated mutual fund, Geneos was called out for a similar failure to notify clients about audited financials in GPB’s automotive fund. Finra said Geneos sold three limited partnership interests to clients totaling $165,000 without telling the clients about the material audit information. Geneos is based in Centennial, Colo., and has 340 registered reps.

Dempsey Lord Smith, a Rome, Ga., firm with 100 registered brokers, sold interests in the GPB automotive portfolio to four clients for a total of $323,000 and received $25,840 in commissions for it, also while neglecting to tell these clients about the filing problems with the fund, Finra said.

One of the biggest charges for GPB-related missteps was against National Securities Corporation of Boca Raton, Fla., a firm with 574 reps. Tucked into a June letter ordering a $3.6 million fine and $4.77 million disgorgement from the company, Finra said National Securities Corporation had sold 115 limited partnership interests in the GPB Automotive Portfolio fund and eight interests in its GPB Holdings II fund in 2018 without disclosing that the partnerships would be late in disclosing audited financial statements. Those sales totaled $8.7 million, and NSC received $701,480 in commissions.

Too Much To Bear
Carol Wildermuth said that defending against the arbitration claims over GPB became too expensive to keep her firm afloat.

“Kalos carried primary and secondary E&O insurance policies,” she said in her declaration, “but even so, the cost of an eight-to-12 month arbitration process typically costs a broker-dealer approximately $170,000. The process does not allow for a dismissal on a meritless claim (e.g., the product was not sold by the broker-dealer, or the client/investor never lost money) until the hearing after the claimant rests his/her case. Because by that time the respondent (the broker-dealer) will have spent 95% of the total cost of defense, many firms choose to settle highly defensible cases prior to the hearing if the expected settlement is less than $170,000.”

Neither of the Wildermuths currently have any disclosures on their BrokerCheck sites, though Daniel Wildermuth is currently not registered with Finra. Carol Wildermuth is currently listed under a firm called "Wildermuth Securities" in Ponte Vedra Beach, Fla.