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Investigation Breakdown: The GPB Ponzi Scheme

November 23, 2021 In The News

The U.S. Securities and Exchange Commission (SEC) has accused GPB Capital and multiple individuals affiliated with the firm of operating a $1.7 billion Ponzi scheme that victimized approximately 17,000 investors. Our firm has launched an investigation as well, and we are currently accepting cases against GPB Capital to be filed in FINRA arbitration.

The issues with GPB Capital began in April 2018. Since then, the firm’s investors have received one piece of bad news after the next. GPB Capital suddenly announced that it would no longer be accepting funds from new accredited investors, and then a short time later the Massachusetts Securities Division announced that it was launching an investigation into GPB Capital and brokerage firms selling the firm’s funds.

Federal investigations followed, which we discuss these in greater detail below. GPB Capital’s accounting firm abruptly quick citing risks related to GPB Capital’s disclosure practices. While GPB Capital, its insiders and the brokerage firms that recommended GPB Capital’s funds to investors raked in hundreds of millions of dollars, these investors saw the value of their portfolios virtually disappear.

The GPB Capital Ponzi Scheme: The Basics

What is GPB Capital?

GPB Capital is an alternative asset management firm founded by David Gentile in New York City in 2013. While GPB Capital claimed to invest in automotive dealerships and waste management companies (among other businesses), investigations have revealed that the firm largely operated as a Ponzi scheme that bilked investors out of approximately $1.7 billion.

What is a Ponzi Scheme?

A Ponzi scheme is a type of investment fraud scam in which a firm uses new investors’ funds to pay “returns” to earlier investors. While it appears that investors are profiting from the firm’s investment activities, in reality they are just receiving money deposited with the fund by other investors. The Ponzi scheme operators keep the vast majority (if not all) of the profits generated from investment activities; and, in the end, they keep the majority of investors’ funds as well.

How Did GPB Capital Take Advantage of Investors?

After reviewing GPB Capital’s financial records, regulators accused the firm of operating a “Ponzi-like scheme” that led to substantial investor losses. As the SEC explained in a Press Release in February 2021:

“The SEC’s complaint alleges that [GPB Capital and its insiders] lied to investors about the source of money used to make an 8% annualized distribution payment to investors. [While they] told investors that the distribution payments were paid exclusively with monies generated by GPB Capital’s portfolio companies . . . GPB Capital actually used investor money to pay portions of the annualized 8% distribution payments.  GPB Capital [and its insiders] . . . also allegedly manipulated the financial statements of certain limited partnership funds managed by GPB Capital to perpetuate the deception . . . .

“The SEC’s complaint further alleges that GPB Capital . . . made misrepresentations to investors about millions of dollars in fees and other compensation . . . . As alleged, the fraudulent scheme continued for more than four years . . . .”

FINRA, FBI and SEC All Launch Investigations Into GPB Capital

Since information about GPB Capital’s alleged Ponzi scheme has come to light, the SEC, Federal Bureau of Investigation (FBI), and Financial Industry Regulatory Authority (FINRA) have all launched investigations into GPB Capital. While these investigations are important for holding GPB Capital and its insiders accountable, they have caused investors’ shares to become virtually worthless. The firm and its insiders are now facing multiple criminal allegations in addition to lawsuits and arbitration claims filed by investors around the country.

Why This Matters

If you invested in GPB Capital, why does all of this matter? The answer is simple: It is becoming clearer every day that GPB Capital and its insiders defrauded investors. It appears that many, if not most or all, of the brokerage firms that sold shares of GPB Capital funds to investors engaged in fraudulent practices as well. As a result, not only may investors have claims against GPB Capital, but they may have claims against their brokerage firms as well.

This includes claims for charging excessive commissions (reportedly 8% or higher), violating their fiduciary duty by making investment recommendations based on a conflict of interest, and withholding material information from their investor-clients. It also appears that many brokers made unsuitable recommendations to invest in GPB Capital—the firm’s Ponzi-scheme notwithstanding. This is because most investments in GPB Capital funds were private placements. These are high-risk investments that are only suitable for high-net-worth accredited investors who are capable of weathering substantial investment losses.

Furthermore, even if a brokerage firm was unaware of the issues with GPB Capital, adequate due diligence should have revealed significant concerns in many cases. In fact, the high commissions GPB Capital offered alone should have been a red flag for fraud.

What Should GPB Capital Investors Do?

With all of this in mind, what should GPB Capital investors do? The answer to this question is simple as well: GPB Capital investors should consult with a GPB Ponzi Scheme lawyer promptly. As the first evidence of GPB Capital’s alleged Ponzi scheme came to light in 2016, all eligible investors who lost money with GPB Capital funds still have time to file claims in FINRA arbitration—although time may be running out for some. Investors may also be able to pursue securities fraud claims against GPB Capital and other entities in federal district court.

At Zamansky LLC, we are committed to helping defrauded investors recover the losses they have sustained as a result of investing in GPB Capital funds. We have been investigating GPB Capital since 2018, and we are intimately familiar with the allegations, claims and issues involved. If you have a claim against GPB Capital or a brokerage firm that sold you shares in a GPB Capital fund, we can help, but it is important that you contact us promptly to ensure that you still have time to be part of the securities arbitration.

Speak with a GPB Ponzi Scheme Lawyer about Filing a Claim Against GPB Capital

If you have lost money with GPB Capital, our lawyers may be able to help you recover your losses in federal court or in FINRA arbitration. To learn more in a free and confidential consultation, call 212-742-1414 or tell us how we can contact you online now.