GPB execs goosed records to pump sales, partner claims

Two former senior executives instrumental in selling $1.8 billion of high-risk, GPB Capital Holdings private placements altered records starting in 2014 in order to smooth over potential concerns of the company's funds performing poorly, according to a former GPB founding partner who is testifying this week in federal court in Brooklyn.

The two executives facing fraud and conspiracy charges, CEO and founder of GPB David Gentile and broker-dealer chief Jeffry Schneider, have been on trial for a month. On Wednesday afternoon and into Thursday, Gentile and Schneider's former partner, automobile executive Jeffrey Lash, took the stand and claimed that the culture at the New York-based GPB put selling high-commission and high-fee alternative products before the investors.

Key to GPB's success in selling the private placements, which invested primarily in auto dealerships and trash businesses, was an annual 8% return, distributed monthly, to investors, said Lash, who was originally an accounting client of Gentile's, who Lash described as a "wizard" at the profession.

Income and proceeds from the car dealerships were to be the GPB funds source of the distribution, which is akin to a dividend but in certain private investments may also include the return of the investors' capital.

Schneider, the owner and CEO of defunct broker-dealer Ascendant Capital, was focused on getting a "pop" in raising capital, or selling more private placements, Lash said on Wednesday afternoon.

And that "pop" came when GPB declared a "special distribution" of 1% or 2% to investors, many of whom were retirees, with the intent for those investors to buy more GPB product or recommend it to friends, Lash claimed. The idea to pay distributions monthly rather than every three months was to keep clients close to their mailboxes, Lash said.

Schneider "would always get a big influx of clients when he did a special distribution," Lash said on Wednesday, with one GPB fund making two such distributions in 2015.

The special distributions made Schneider particularly ebullient, according to text messages that were part of the fed's evidence presented Thursday.

"We good on 1% special distribution," Schneider wrote in a text message to the other GPB executives in 2014. "Talk to me, bitch."

In another message about distributions, Schneider texted: "Oh daddy, can we send out an email blast on it?"

Gentile wrote: "I think it would be a huge announcement."

Wearing a gray suit, silver tie and white shirt, Lash sat in the witness box across the crowded court room from his former partners. Gentile in particular avoided looking at Lash, who have known each other for almost 30 years. The GPB chief kept his head down and took notes through much of Wednesday and Thursday, with barely a glance in the direction of the government's star witness.

Owned by Gentile, GPB earned a 2% fee for assets managed, according to Lash. Two percent of $1 billion is $20 million.

The initial GPB partnership in 2013 wanted to raise $50 million for its first fund, Lash said, but that snowballed. “That turned into hundreds of millions,” he said.

GPB Capital saw incredible growth selling its high risk private placements through dozens of independent broker-dealers and five years later had raised $1.8 billion from wealthy clients looking for yield in a decade when interest rates were next to zero.

GPB first started ringing alarm bells six years ago, when it came to light that the company and its largest funds had failed to make timely required filings, including audited financial statements, with the Securities and Exchange Commission.

In February 2019, the FBI raided GPB offices in Manhattan. Two year later, the Justice Department, along with the SEC charged Gentile, Schneider and Lash with a number of fraud charges, including creating a Ponzi-like scheme and securities fraud, wire fraud and conspiracy. Lash pleaded guilty last year to one count of wire fraud, which has a maximum sentence of 20 years in prison.

He left GPB in 2017 and was later arrested. "I wanted it to end," Lash said on Thursday when asked by assistant U.S Attorney Nicholas Axelrod about his cooperation with the feds. He also agreed to forfeit $3.2 million as part of his plea agreement and has so far paid $2 million.

The federal government in 2021 charged that Gentile and Schneider allegedly used phony, back-dated documents and paid distributions, or dividends, to investors using their own money, rather than coming clean and admitting that the performance of GPB funds was not as steady as it appeared.

With the knowledge of other senior GPB executives, Lash signed off on three separate backdated forms called "performance guarantees" as part of the alleged scheme to paper over concerns of the funds, he said on Thursday. It took a while for Lash to come clean to the FBI, he said, adding that he "left out" certain truths to federal investigators in 2019 when first questioned about the performance guarantees.

Gentile's attorney, Matthew Menchel, in cross examination of Lash, made clear from the get-go he would focus on poking holes in Lash's recollection of certain events, including conversations Lash had claimed to hear involving other GPB executives.

Menchel asked Lash about the performance guarantees, asking whether he had made different statements about them, including that they were legitimate in at least one instance and bogus in others. "Yes," Lash replied.