As discussed in previous posts on this blog, the U.S. Securities and Exchange Commission (SEC), the FBI, and the New York Business Integrity Commission are reportedly investigating GPB Capital Holdings LLC (“GPB”). Now David Rosenberg, a principal of a private company and one of GPB’s business partners, Prime Automotive Group in Massachusetts, is also reportedly accusing GPB in publicly-available court papers of financial misconduct and running a “Ponzi-like scheme”.
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.
David Rosenberg, the former CEO of Prime Automotive Group, is reportedly a former partner of GPB who sold his majority state in 2017 and is now publicly accusing GPB of engaging in a “Ponzi-like scheme.” Mr. Rosenberg claims in his lawsuit that GPB used money from investors to prop up the performance of various auto dealerships and to finance payments to other investors. Law Office of Christopher J. Gray, P.C. has not independently confirmed these allegations, and is merely reporting what Mr. Rosenberg has alleged in his publicly-available court papers.
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.
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 understand and 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.
Some of the private placement offerings sold by GPB are as follows:
GPB Holdings LP
GPB Holdings II
GPB Holdings III
GPB Automotive Portfolio LP
GPB Waste Management, LP
GPB NYC Development LP
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 firstname.lastname@example.org for a no-cost, confidential consultation. Attorneys at the firm are admitted in New York, New Jersey, 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).