The Securities and Exchange Commission today charged three individuals and their three affiliated firms with running a Ponzi-like scheme that raised more than $1.7 billion selling securities issued by New York-based registered investment advisor GPB Capital. The SEC also charged GPB Capital with violating whistleblower protection laws.
David Gentile, owner and CEO of GPB Capital, and Jeffry Schneider, owner of GPB Capital’s placement agent Ascendant Capital, are accused of defrauding and lying “to investors about the source of money used to make 8% annualized distribution payments to investors,” the SEC said.
GPB Capital describes itself as a New York-based alternative asset management firm that acts as a general partner and fund manager for limited partnership funds. Since its founding in 2013, it has raised money for at least five limited partnership funds from approximately 17,000 retail investors nationwide, approximately 4,000 of whom are seniors, the SEC said.
To existing and prospective investors in the limited partnership funds, GPB Capital projected an aura of success, touting consistent 8% annualized distribution payments to investors, as well as periodic “special distributions” ranging from 0.5% to 3%, the SEC said.
“As alleged in our complaint, the defendants told investors that they would be paid distributions from profits of the portfolio companies when, in reality, many of the payments were being made from the investors’ own funds,” said Richard Best, director of the SEC’s New York Regional Office, in a statement. “This action shows our continued pursuit of those who deceive investors and conceal their misconduct to reap profits for themselves.”
The agency said that almost all of the $1.7 billion the firms raised is still at risk: In 2018, GPB Capital suspended all redemptions and distributions and, according to a recent regulatory filing, GPB Capital’s assets are far below its obligations to the investors, the SEC said.
The defendants, along with Ascendant Alternative Strategies, which marketed the securities, told investors that their investment payments were paid exclusively with monies generated by GPB Capital’s portfolio, but instead, the SEC claims, investor money was used to pay portions of the annualized 8% distribution payments.
GPB Capital and Gentile, with assistance from Jeffrey Lash, a former managing partner at GPB Capital, were also accused of manipulating the financial statements of certain limited partnership funds managed by GPB Capital to give the appearance the funds were closer to generating sufficient income to cover the distribution payments than they actually were.
The SEC also claims GPB Capital and Ascendant Capital misled investors about millions of dollars in fees and other compensation received by Gentile and Schneider.
“The fraudulent scheme continued for more than four years, in part because GPB Capital kept investors in the dark about the limited partnership funds’ true financial condition, failing to deliver audited financial statements and register two of its funds with the SEC,” the agency said.