As previously reported, both the SEC and FINRA have reportedly commenced investigations into GPB Capital Holdings, LLC (“GPB”). According to news reports GPB is now under investigation by the FBI as well. Investment News reports that the FBI made an unannounced visit last week to the investment firm’s office in New York, along with officials from a New York regulator. According to press reports, the focus of the SEC’s inquiry was the accuracy of financial disclosures made by GPB to investor in its funds. The target of the reported FBI investigation has not been publicly reported. 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 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.
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 email@example.com 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).