GPB paid convicted top executives legal fees of $75M

As investors in moribund GPB Capital Holdings private placements wait for relief, the investment company, which hasn’t paid out a nickel to clients since 2018, has underwritten the legal cost of its two senior executives and convicted felons, founder David Gentile and broker-dealer chief Jeff Schneider, to the amount of $75 million, according to a recent court filing.

And Gentile and Schneider, who were convicted of fraud and conspiracy in federal court in Brooklyn last August, want the company to continue paying legal fees, according to a court filing from February.

“Gentile and Schneider have already received advancement for approximately $75 million in defense costs, a staggering amount that has significantly reduced the investors’ likely returns under the plan,” wrote Douglas A. Fellman, an attorney for the GPB receiver, Joseph T. Gardemal III, in a court filing last month.

They are scheduled for sentencing in April. 

Founded in 2013, 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 primarily invested in car dealerships and trash hauling businesses.

The firm had more than a half-dozen funds and targeted a steady 8 percent annual return to investors. Led by Gentile and Schneider, GPB first started ringing alarm bells in 2018, 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. Investors stopped getting distributions, akin to dividends, from GPB seven years ago.

The GPB receiver’s plan to return money to investors was filed January in federal court in Brooklyn. Then, founder and CEO Gentile and broker-dealer chief Schneider filed a series of objections to the plan, claiming it would prevent them from receiving legal costs that were part of an earlier court ruling.

Matt Menchel, an attorney for Gentile, did not return a call Wednesday afternoon to comment about the $75 million in fees.

Federal prosecutors during their trial last summer charged that Gentile and Schneider 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.

“It’s the height of hubris that the people who stole money from their investors, and in such a calculated way, would think they are entitled to legal fees,” said Sander Ressler, managing director of Essential Edge Compliance Outsourcing Services. “If that money didn’t go for their legal fees, it would wind up back with the investors.”

“This is a horrible development, and it’s obviously a conflict of interest,” said a senior brokerage executive who spoke privately to InvestmentNews about the matter. “These executives should go to the end of the line, not try to stand in the front.”

In February 2019, the FBI raided GPB offices in Manhattan. Two year later, the Justice Department and the SEC charged Gentile, Schneider and another senior executive, Jeffrey Lash with a number of fraud counts, including creating a Ponzi-like scheme and securities fraud, wire fraud, and conspiracy. Lash pleaded guilty in 2023 and testified against Gentile and Schneider last summer during their fraud trial in Brooklyn.