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 email@example.com 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).