Private placement executives from GPB Capital, guilty of fraud, get seven and six years in prison

Seven years after GPB Capital Holdings, the high-risk, high-cost private placement manager, began to unravel because of accounting shortfalls, its two senior executives, founder David Gentile, and broker-dealer and sale chief Jeff Schneider, received justice. On Friday afternoon in federal court in Brooklyn Gentile and Schneider were sentenced, respectively, to seven years and six years in prison, according to spokesperson for the Justice Department. 

Last August, a jury in federal court in Brooklyn found Gentile, 58, guilty of five counts of fraud; Schneider, 56, three. The federal government’s charges stemmed from Gentile and Schneider's management of GPB Capital Holdings, which was founded in 2013.

Before starting GPB, Gentile was a longtime accountant in Long Island and Schneider a broker-dealer executive and salesman.

The money manager sold its high risk private placements through dozens of independent broker-dealers. Five years later, he had raised $1.8 billion from wealthy clients looking for yield in a past decade when interest rates were next to zero.

But when the funds’ performance lagged, the defendants tried to disguise the shortfall with fraudulent, back-dated documents and paid investor distributions out of investor capital, according to the U.S. Attorney’s Office. Those manipulations helped goose sales of more GPB funds, which were sold to wealthy investors by financial advisors.

Investors haven’t seen any money from GPB since 2018. Prior to that, GPB had more than a half-dozen funds that invested primarily in auto dealerships and trash hauling businesses, targeting a steady 8% annual return to investors. 

Private placements sold by independent broker-dealers often carry the highest expenses allowed under industry rules, charging as much as 10% commissions to clients.

A federal judge in Brooklyn last month approved the release of $400 million in funds to some of the beleaguered investors in GPB Capital Holdings who have not seen a nickel or returns since 2018, when the private placement investment scheme began to unravel.

Over the winter, it was revealed GPB was underwriting the legal cost of Gentile and Schneider to the amount of $75 million.

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.

In February 2019, the FBI raided GPB offices in Manhattan. Two year later, the Justice Department, along with the SEC charged Gentile, Schneider and another senior executive, Jeffrey Lash, with a number of fraud charges, including creating a Ponzi-like scheme and securities fraud, wire fraud and conspiracy. Now, Gentile and Schneider and heading to prison.

Note: This is a breaking story with more details potentially to come.