Now, these problems have apparently come home to roost in the form of investor losses, as it was recently reported that GPB issued revised, lower valuations for two of its funds, GPB Holdings Fund II and GPB Automotive Fund. The funds purportedly lost 25.4% and 39% of their value respectively. Investors are left to guess whether this is the end of the losse, or whether GPB’s other funds including GPB Holdings LP, GPB Holdings III, GPB Waste Management, LP, and GPB NYC Development LP – will also lose value.

GPB is a New York-based alternative asset management firm whose business model is predicated on “acquiring income-producing private companies” across a number of industries including automotive, waste management, and middle market lending. An issuer of private placements, GPB has raised $1.8 billion from accredited investors in funds that in turn invest in auto dealerships and the waste management industry. Stockbrokers and advisors from dozens of brokerage and financial advisory firms sold the high risk, high-commission private placements, including GPB Automotive Portfolio, LP, and GPB Waste Management, LP. According to SEC filings approximately 60 brokerage firms sold clients investments in various GPB Capital Funds. However, the primary sellers of these toxic funds appear to have been Royal Alliance, FSC Securities, SagePoint Financial, and Woodbury Financial Services.

Private placement investments are complex and fraught with risk. To begin, private placements are often sold under a high fee and commission structure. Reportedly, one brokerage executive has indicated that the sales loads for GPB private placements were 12%, including a 10% commission to the broker and his or her broker-dealer, as well as a 2% fee for offering and organization costs. Such high fees and expenses act as an immediate drag on investment performance.

Further, private placement investments carry a high degree of risk due to their nature as unregistered securities offerings. Unlike stocks that are publicly registered, and therefore, must meet stringent registration and reporting requirement as set forth by the SEC, private placements lack regulatory oversight. Accordingly, private placements are typically sold through what is known as a “Reg D” offering. Investing through a Reg D offering is risky because investors are usually provided with very little in the way of information. For example, private placement investors may be presented with unaudited financials or overly optimistic growth forecasts, or in some instances, with a due diligence report that was prepared by a third-party firm hired by the sponsor of the investment itself.

As recently reported, both the SEC and FINRA have commenced their own investigations into GPB Capital Holdings, LLC (“GPB”). GPB is a New York-based alternative asset management firm whose business model is predicated on “acquiring income-producing private companies” across a number of industries including automotive, waste management, and middle market lending. These investigations by federal regulators come on the heels of Massachusetts securities regulators announcing in September 2018 their own investigation into GPB, as well as the sales practices of more than 60 independent broker-dealers who reportedly offered private placement investments in various GPB funds to their clientele.

GPB has raised approximately $1.8 billion in investor funds across its various private placement offerings, including GPB Automotive Portfolio, LP, and GPB Waste Management, LP. Private placement investments are complex and fraught with risk. To begin, private placements are often sold under a high fee and commission structure. Reportedly, one brokerage executive has indicated that the sales loads for GPB private placements were 12%, including a 10% commission to the broker and his or her broker-dealer, as well as a 2% fee for offering and organization costs. Such high fees and expenses act as an immediate drag on investment performance.

Further, private placement investments carry a high degree of risk due to their nature as unregistered securities offerings. Unlike stocks that are publicly registered, and therefore, must meet stringent registration and reporting requirement as set forth by the SEC, private placements do not have the same regulatory oversight. Accordingly, private placements are typically sold through what is known as a “Reg D” offering. Unfortunately, investing through a Reg D offering is risky because investors are usually provided with very little in the way of information. For example, private placement investors may be presented with unaudited financials or overly optimistic growth forecasts, or in some instances, with a due diligence report that was prepared by a third-party firm hired by the sponsor of the investment itself.

Broker-dealers are required by law to conduct due diligence on an investment before it is recommended to a client. Furthermore, financial advisors have a duty to disclose the risks associated with a financial product, as well as to conduct a suitability analysis to determine if such an investment meets an investor’s stated investment objectives and risk profile.

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience representing investors in connection with complex investment products, including illiquid private placements and unregistered securities offerings. Investors may contact us via the contact form on this website, by telephone at (866) 966-9598, or by e-mail at newcases@investorlawyers.net for a no-cost, confidential consultation. Attorneys at the firm are admitted in New York and Wisconsin and various federal courts around the country, and handle cases nationwide (in cooperation with attorneys located in those states if required by applicable rules).

On November 9, 2018, GPB Capital Holdings, LLC (“GPB”) notified certain broker-dealers who had been selling investments in its various funds that GPB’s auditor, Crowe LLP, elected to resign. As reported, GPB’s CEO, David Gentile, stated that the resignation purportedly came about “[d]ue to perceived risks that Crowe determined fell outside of their internal risk tolerance parameters.” GPB has since engaged EisnerAmper LLP to provide it with audit services moving forward.

As we recently discussed, GPB has come under considerable scrutiny of late. In August 2018, the sponsor of various private placement investment offerings including GPB Automotive Portfolio and GPB Holdings II, announced that it was not accepting any new investor capital, and furthermore, was suspending any redemptions of investor funds. This announcement followed GPB’s April 2018 failure to produce audited financial statements for its two largest aforementioned funds. By September 2018, securities regulators in Massachusetts disclosed that they had commenced an investigation into the sales practices of some 63 independent broker-dealers who have reportedly offered private placement investments in various GPB funds. To name a few, these broker-dealers include: HighTower Securities, Advisor Group’s four independent broker-dealers – FSC Securities, SagePoint Financial Services, Woodbury Financial Services, and Royal Alliance Associates, in addition to Ladenburg Thalmann’s Triad Advisors.

The various GPB private placement offerings include:

• GPB Automotive Portfolio, LP
• GPB Cold Storage LP
• GPB Holdings, LP
• GPB Holdings II, LP
• GPB Holdings III, LP
• GPB Holdings Qualified, LP
• GPB NYC Development, LP
• GPB Waste Management, LP (f/k/a GPB Waste Management Fund, LP)

As private placement investments, the various GPB funds are very complex and risky investments, and therefore, are typically not suitable for the average, retail investor. Unfortunately, due to the high commission and fee structure associated with the various GPB funds, instances may have arisen where an unscrupulous financial advisor failed to fully inform his or her client of the many risks associated with such a private placement investment. According to certain SEC filings, sales of GPB’s two largest aforementioned funds allegedly netted the broker-dealers marketing these illiquid and esoteric products some $100 million in commissions, at a rate of about 8%, since 2013.

In addition to hefty fees, committing capital to a private placement investment carries with it substantial risks. Private placements are illiquid investments, and as such, investors may not readily sell out of their investment (often for a period of many years). Furthermore, private placements, typically offered pursuant to Regulation D, as promulgated by the SEC, are not required to provide investors with the same depth of information and disclosures as is required with publicly traded securities. Because of their risky and complex nature, private placement investments are most usually only available to accredited and/or sophisticated investors. As defined by the SEC, an investor is considered “accredited” if he or she has an annual income of over $200,000 or has a net worth of more than $1 million of assets (excluding one’s primary residence). It is a financial advisor’s responsibility to ensure that an investor meets this test.

Financial advisors, and by extension their brokerage firm, have an affirmative obligation to perform adequate due diligence on any investment recommended to customers, including private placement offerings pursuant to Reg D. Furthermore, financial advisors have a duty to disclose the risks associated with such an investment, as well as conduct a suitability analysis to determine if an investment meets an investor’s stated investment objectives and risk profile.

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience representing investors in connection with complex investment products, including illiquid private placements and unregistered securities offerings. Investors may contact us via the contact form on this website, by telephone at (866) 966-9598, or by e-mail at newcases@investorlawyers.net for a no-cost, confidential consultation. Attorneys at the firm are admitted in New York and Wisconsin and various federal courts around the country, and handle cases nationwide (in cooperation with attorneys located in those states if required by applicable rules).

As recently reported, the Massachusetts Securities Division (the “Division”) has commenced an investigation into the sales practices of some 63 independent broker-dealers who offered private placements sponsored by alternative asset manager GPB Capital Holdings, LLC (“GPB”). Specifically, the Division has intimated that it began an investigation into GPB following a recent tip concerning the firm’s sales practices which allegedly occurred not long after GPB announced that it was temporarily halting any new capital raising efforts, as well as suspending any redemptions.

According to the Division’s head, Mr. William Galvin, the investigation is in its “very nascent stages.” At this time, Massachusetts securities regulators have requested information about GPB from more than 60 broker-dealers, including HighTower Securities, Advisor Group’s four independent broker-dealers, as well as Ladenburg Thalmann’s Triad Advisors.

In August 2018, GPB – the sponsor of certain limited partnership offerings including GPB Automotive Portfolio and GPB Holdings II – announced that it was not accepting any new capital. According to filings with the SEC, sales of the two aforementioned GPB private placements allegedly netted the broker-dealers marketing these investment products some $100 million in commissions, at a rate of about 8%, since 2013.

As recently reported in the Wall Street Journal (WSJ), investments in so-called private placements have experienced a substantial upswing in the wake of the 2008 financial crisis: “In 2017 alone, private placements using brokers totaled at least $710 billion … a nearly threefold increase rise from 2009.” Further, the article indicates that financial advisors recommending private placements are “six times as likely as the average broker to report at least one regulatory action against them…” and, moreover, that 1 in 8 brokers recommending private placement investments have “three or more red flags on their records, such as investor complaint, regulatory action, criminal charge or firing… .”

As a general rule, investing in a private placement carries with it considerable complexity and risk, including hefty commissions, lack of transparency, as well as the illiquid nature of the unregistered offering. Accordingly, such private placement investments are typically only available to accredited and/or sophisticated investors. An investor is considered “accredited” if he or she has an annual income of over $200,000 or has a net worth of more than $1 million of assets (excluding one’s primary residence). It is a financial advisor’s responsibility to ensure that an investor meets this test.

Financial advisors, and by extension their brokerage firm, have a duty to perform adequate due diligence on any investment recommended to customers, including private placement offerings pursuant to Regulation D, as promulgated by the SEC. Furthermore, financial advisors have a duty to disclose the risks associated with such an investment, as well as conduct a suitability analysis to determine if an investment meets an investor’s stated investment objectives and associated risk profile.

Investors who wish to discuss a possible claim concerning an investment in a GPB offering or another private placement may contact Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation. Attorneys at the firm are admitted in New York and Wisconsin and various federal courts around the country, and handle cases nationwide (in cooperation with attorneys located in those states if required by applicable rules).