One of the current leading sellers of illiquid, high-commission alternative investments through independent broker-dealers, GPB Capital Holdings, is in the middle of an ugly dispute with a former business partner who allegedly recently reneged on the sale to GPB of a group of auto dealerships valued at about $40 million, according to GPB's complaint.
According to several industry sources, GPB raised between $600 million to $800 million from investors through sales of reps at independent contractor broker-dealers.
On its website, the company says it has raised $1.3 billion and owns more than 100 companies in its various portfolios. Brokers collect a 7% commission for selling the high-yield private placements, according to those sources.
Last July, GPB and a series of its related investment funds sued Patrick Dibre, who owned auto dealerships in the New York metropolitan region and who in 2013, the same year GPB launched, "held himself out to'' the firm as a person who could build out GPB's auto dealership business,
according to the complaint, which was filed in New York Supreme Court in Nassau County.
Between December 2013 and April 2015, GPB advanced Mr. Dibre $42 million for auto dealerships he allegedly never delivered, according to the lawsuit. In a footnote to the lawsuit, GPB noted that the process for seeking a carmaker's approval of the sale of a dealership is initiated by the seller. Mr. Dibre allegedly failed to provide the required notices to start the sales process of five dealerships, according to the complaint.
"Rather, Dibre informed automobile manufacturers that they should withhold their approval of GPB owning and operating dealers because of untrue alleged malefactions and malfeasance on the part of GPB," according to the complaint. GPB also alleged that Mr. Dibre is "negotiating for the sale to an investment fund" of the same dealerships.
GPB's lawsuit is ongoing. Last month, New York Supreme Court Judge Vito DeStefano
dismissed two of GPB's claims against Mr. Dibre but allowed the others, including fraud, breach of contract and others.
An attorney for Mr. Dibre, Ross Katz, did not return calls Wednesday to comment.
James Presitiano, an attorney for GPB, said that he was hopeful the matter would be resolved this year. He confirmed that GPB's sales in 2017 were in the neighborhood of $600 million to $800 million. "I think that's an accurate ballpark" figure, Mr. Presitiano said.
It is not clear which broker-dealers are selling GPB's deals. The private placements are expensive. GPB Automotive Portfolio raised a total of $369.2 million from more than 3,800 investors, and paid out a total of $43.4 million — 11.75% — in sales commissions, according to a filing with the Securities and Exchange Commission. That includes 7% to the individual broker and a variety of other costs and fees.
Sales of illiquid alternative investments like nontraded real estate investment trusts have suffered over the past couple of years because of the Department of Labor's fiduciary rule, which has caused broker-dealers to flatten commissions due to conflict of interest rules.
GPB is marketing its partnerships as
private equity, but the emphasis is on immediate earnings, said Susan Kelly, a director in investment management and research at Commonwealth Financial Network, which does not sell GPB funds.
"It's a hybrid," she said. "It's a private-equity type fund that is looking for businesses with cash flow."
