GPB Capital reports nearly $200 million drop in AUM

GPB Capital Holdings at the end of June reported a sharp decline in its regulatory assets under management over an 18-month period and several changes in management and financial oversight that are sure to spur more questions about the beleaguered alternative asset manager.

At the end of June 2019, the firm, which is facing multiple investigations from state and federal authorities, reported $238.6 million in regulatory assets under management, according to its Form ADV, which it filed with the Securities and Exchange Commission at the end of last month. A year-and-a-half earlier, at the end of 2017, the firm reported $434.3 million in AUM, for a decline of $196.3 million, or a drop of 45.2%.

GPB Capital's business model is to raise money from investors through sales of high-commission products at dozens of independent broker-dealers and use that capital to buy businesses like auto dealerships or trash haulers. That means the drop in assets under management could likely not be due to swings in the broad stock market.

When asked about the reason for the decline in AUM, a spokesperson, Nancy Sterling, did not comment.

GPB raised $1.8 billion from investors starting in 2013 through sales of private partnerships, but it has not paid investors steady returns, called distributions, since 2018. Last year, the company delivered a blow to investors when it reported significant declines in the values of its funds.

The assets under management reported on GPB's Form ADV are under the roof of its registered investment adviser; those assets do not include those of other GPB-managed holding companies.

Meanwhile, GPB Capital also reported in the SEC filing other potentially concerning issues for investors and broker-dealers that sold the private placements. The company that provides valuations for the company's private funds has resigned; the auditor for one fund, Armada Waste Management, also resigned; and a new entity called Highline Management Inc. was formed at the start of this year to manage GPB's business affairs.

Sterling added that both the Armada Waste auditor and the valuation provider resigned without cause and that the company had no additional information about Highline. She also said that GPB hired a new valuation provider.

GPB has been promising investors for years it would produce audited financial statements; so far, nothing has been revealed. An auditor resigning from a fund is commonly regarded as a red flag by investors and financial advisers.

"How did GPB evaporate half the money," asked Joe Peiffer, an attorney representing dozens of investors with complaints against the broker-dealers that sold the GPB private placements. "All this would be answered if GPB could get the audit it’s been promising done but I suspect that is not forthcoming."

GPB is facing numerous difficulties. The FBI raided its offices in the winter of 2019; its former chief compliance officer was indicted last October and charged with obstruction of justice; and it has repeatedly missed deadlines for filing audited financial statements for its funds.

The company has been under investigation by the Securities and Exchange Commission and the FBI. And in May, William F. Galvin, secretary of the Commonwealth of Massachusetts, charged GPB Capital with defrauding 180 local investors who had purchased private placements from broker-dealers that sold the products and charged steep commissions of 7% to 8%.