Top private placement manager GPB Capital halts sales to review accounting

Leading seller of risky private placements will focus on accounting at two large funds

Aug 17, 2018 @ 5:16 pm

By Bruce Kelly

A leading seller of high-risk, high-commission private placements, GPB Capital Holdings, with $1.8 billion in investor money, will take a break from raising new money to focus on straightening out the accounting and financial statements of its two large funds.

GPB, which launched in 2013 with much of its focus on buying auto dealerships, stated its intention to take a pause in raising money in a letter sent Friday afternoon to broker-dealers that sell GPB-branded private placements.

GPB recently has seen rapid growth in sales of private placements.

"While growth has led to many successes, it has also come with challenges," according to the letter, which was signed by GPB Capital CEO David Gentile. "There is much work to be done with respect to integrating the high volume of recent acquisitions into their respective platforms in order to execute on our performance objectives."

GPB Capital missed an April 30 deadline to file financial statements with the Securities and Exchange Commission for two of its largest funds, GPB Holdings II and GPB Automotive Portfolio, which combined have close to $1.3 billion in investor capital. As InvestmentNews reported last month, both funds crossed industry thresholds for making such information public more than a year ago.

Many brokerage executives have been waiting anxiously for GPB to report the financial statements for those two funds and have had conversations with management about the delay. In the letter, a copy of which InvestmentNews obtained from a brokerage industry source, Mr. Gentile points to dealing with proper accounting standards as the reason for the delay.

"As part of the registration process, Holdings II and Automotive must produce annual audited financial statements that conform with SEC regulations and the auditing standards issued by the Public Company Accounting Oversight Board," wrote Mr. Gentile, who ran his own advisory and accounting firm before launching GPB. "As a result of this and other factors the issuance of our audited financial statements and the filing of our registration statement will be further delayed."

"Best practices and efficient reporting are a top priority for us," Mr. Gentile wrote. "As a result, we have decided it is in the best interest of our limited partners to temporarily pause the acceptance of new capital from investors."

The company is also suspending redemptions of funds until the audited financial statements have been released and public filings are completed, according to the letter.

The letter does not say whether distributions, which are akin to the dividends of public companies, will be cut or affected in any way. However, a source close to the company said that distributions to clients will not be affected as GPB halts sales and reviews its financial statements.

GPB Capital has built the 13th largest private auto dealership group in the U.S. It also invested heavily in physical therapy and New York City area private waste services businesses.

GPB Automotive Portfolio has raised $622.1 million from wealthy investors over the past five years, and GPB Holdings II has raised $645.8 million since 2015, according to company SEC filings in May.

Together, the two funds have paid brokers $100.1 million in commissions at a rate of 7.9%.

As many as 60 broker-dealers sold the funds. While many were smaller IBDs, among the most prominent firms listed in SEC filings were the four Advisor Group broker-dealers — Royal Alliance Associates Inc., Sagepoint Financial Inc., FSC Securities Corp. and Woodbury Financial Services Inc.

Brokers and advisers can sell private placements, also known as Reg D deals, to wealthy, accredited investors and institutions. Private placements have far fewer regulatory standards to adhere to than publicly listed companies. The minimum investment in GPB Automotive Portfolio was $100,000.

A spokesman for GPB, Ray Hennessey, declined to comment beyond Mr. Gentile's letter to the broker-dealers that sold the private placements.

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