GPB top executives’ criminal trial to start Monday

The criminal trial of the top two senior executives of GPB Capital Holdings, David Gentile and Jeffry Schneider, begins on Monday in federal court in Brooklyn, after clients and financial advisors have faced years of confusion regarding when, if ever, they will get back some of the $1.8 billion invested in high-risk private placements that the Feds have alleged were part of a fraud.

GPB founder and CEO Gentile and Schneider, in charge of broker-dealer sales, were charged in 2021 with defrauding investors who bought the private placements starting in 2013 seeking yield back when interest rates hovered near zero. Also charged was GPB managing partner Jeffrey Lash, who pleaded guilty last year.

A receiver was supposed to take over GPB at some time this year, but that has been delayed, according to a report this winter in Wall Street Journal. The paper also reported that GPB, which primarily invested in auto dealerships and trash hauling businesses, had sold off $1.37 billion in assets.

What's frustrated financial advisors and their clients is the lack of any reported plan to distribute that money back to the original investors.

"Does the system serve the investors," asked a senior, veteran brokerage executive, whose firm was one of dozens to sell the GPB private placements and spoke confidentially to InvestmentNews. "The GPB case is bewildering. We've seen some strange cases over the years, but this takes the cake."

Alarm bells started ringing about GPB in 2018, when it came to light that the company and it various funds had failed to make timely required filings, including audited financial statements for its largest funds, with the Securities and Exchange Commission.

Gentile’s attorney, Sean Buckley, did not return a call Friday morning to comment. Schneider's attorney, Glenn Colton, also did not return a call to comment. The trial is expected to last a month with jury selection on Monday and opening statements scheduled for Wednesday.

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. More than 60 broker-dealers partnered with GPB to sell the private placements and charged customers charged clients commissions of up to 8%.

In February 2019, the FBI raided GPB offices in Manhattan.

Two year later, Justice Department, along with the Securities and Exchange Commission, charge Gentile, Schneider and Lash with a number of fraud charges, including creating a Ponzi-like scheme and securities fraud, wire fraud and conspiracy.

Executive were charged with lying to investors about sources of money to make annual distributions of 8%. The company claimed the distribution were paid for with returns on investments but actually used investors’ own money to make the payments.

Internal communications between Gentile, Schneider and Lash allegedly reveal the extent to which they were aware of cash flow problems and shortfalls at the GPB funds, according to the federal indictment.

In one text message cited in the criminal indictment, Schneider wrote to Lash in 2016: “We have to man up and write checks which is simply giving back dollars we already received.”