Top private placement manager GPB to restate financial statements of certain funds

Details have emerged about accounting issues dogging the firm, including income recognition and related party transactions

Aug 24, 2018 @ 1:10 pm

By Bruce Kelly

GPB Capital Holdings will overhaul and restate the 2015 and 2016 financial statements of certain funds as part of its accounting review, according to letters sent to broker-dealers.

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

Since then, details have emerged about the accounting issues. According to letters using the same language, investors should no longer rely on 2015 and 2016 financial statements and independent accounts' reports for three series of private placements: GPB Automotive Portfolio, with $622.1 million in capital; GPB Holdings II, with $645.8 million; and GPB Holdings Qualified. The last fund's most recent registration statement with the Securities and Exchange Commission showed no money raised from investors.

Accounting issues dogging the firm include income recognition and related party transactions.

"We currently expect that the restatements will include adjustments to the 2015 and 2016 financial statements for items including reclassification of certain transactions and/or corrections in the timing and amounts of income recognition, and enhanced disclosure of certain related party transactions," wrote David Gentile, CEO of GPB Capital Holdings, in one of the letters from last week. "There may be additional items that come to our attention related to the 2015 and 2016 financial statements in the process of completing the 2017 audits.

"In light of the above, we have concluded that certain material weaknesses in internal controls exist, and as a result these internal controls over the financial reporting processes will need to be revised and enhanced," Mr. Gentile wrote.

GPB's current predicament should serve as a wakeup call and reminder of the importance of independent audited financial statements, whether required or not, on such deals, noted Michael Kell, vice president at AI Insight Inc., which focuses on investment research, financial adviser education and compliance documentation for alternative investments.

"Other investment managers, especially smaller private managers, should use this as an opportunity to review their own internal policies, procedures and controls to ensure not only compliance and adequate transparency but a commitment to preventing situations like this from happening in the future," he said.

A spokesperson for GPB, Dana Taormina, said, "GPB Capital is working diligently to complete the financial statements for the funds that have audit delays so that our auditors can complete their work. At the same time, we are working on the necessary adjustments to the 2015 and 2016 financial statements."

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

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.

Mr. Gentile, who ran his own advisory and accounting firm before launching GPB, pointed to the number of acquisitions made by the company last year and the "high degree of complexity" in SEC and Public Company Accounting Oversight Board requirements as taking more time than anticipated, according to the letter.

"Consequently, we have agreed with the company's independent auditor to pause their audit, and over the next 75 days or less, the company will work to prepare, analyze and review the additional supporting documentation required to finalize its consolidated financial statements," according to the letters. "Once the additional work is finalized internally, we will ask our auditor to resume its work to complete the audit process for fiscal year 2017."

0
Comments

What do you think?

View comments

Recommended for you

B-D Data Center

Use InvestmentNews' B-D Data Center to find exclusive information and intelligence about the independent broker-dealer industry.

Rank Broker-dealers by

Upcoming Event

Mar 26

Conference

Huntington Beach Women Adviser Summit

The InvestmentNews Women Adviser Summit, a one-day workshop now held in six cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Featured video

INTV

Why millennial demand for ESG is falling on deaf ears

Editorial director Fred Gabriel and senior columnist Jeff Benjamin say there's a disconnect between the big appetite for environmental, social and governance funds in 401(k) plans and their offering.

Latest news & opinion

Principal-Wells Fargo retirement deal would be among largest ever

Acquisition would be in line with trend of record keepers seeking to gain scale to combat fee reduction.

ESG options scarce in 401(k) plans

There's growing interest among plan participants, but reluctance to add funds that take into account environmental, social and governance factors persists.

Envestnet acquires MoneyGuide for $500 million

Deal will allow Envestnet to deepen integrations between MoneyGuide and its other wealth management solutions.

Genworth move could signal big shift in distribution of long-term-care insurance

Insurers may turn to direct-to-consumer sales only, bypassing brokers and insurance agents.

Morgan Stanley threatens to pull out of Nevada over state's fiduciary rule

Wirehouse says it would not be able to work there under state's current proposal.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print