Auditor walks away from private placement firm GPB Capital

A change in auditors can be perceived as a red flag by many investors

Nov 14, 2018 @ 5:32 pm

By Bruce Kelly

Investors in private placement funds of GPB Capital Holdings who have been waiting for financial statements for its two largest funds will have to keep on waiting.

GPB said in August it was overhauling and restating the 2015 and 2016 financial statements of certain funds as part of an accounting review.

Separately, its accountant, Crowe LLP, had earlier suspended its work relating to an audit to give GPB management time to complete the partnership's 2017 financial statements.

On Friday, GPB told broker-dealers that sold its funds that Crowe had resigned. GPB has raised $1.8 billion from investors, many of whom invest in illiquid, high-risk private placements for income.

"Crowe notified GPB Capital that it elected to resign as the auditor for the partnership... due to perceived risks that Crowe determined fell outside of their internal risk tolerance parameters," according to a letter signed by David Gentile, CEO of GPB Capital Holdings.

Mr. Gentile's letter did not state when the funds' audited financial statements would be completed.

"While GPB Capital was, and remains, extremely disappointed in Crowe's decision, we have identified and engaged a replacement auditor, EisnerAmper LLP," according to the letter. "GPB Capital is committed to complete its work on the partnership's financial statements and to working with EisnerAmper to complete the partnership's audit as soon as possible."

Ray Hennessey, a spokesman for GPB, declined to comment for this story.

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

A change in auditor or accounting firm can be perceived as a red flag by many investors.

"Any time anyone switches auditors, it raises the hair on the back of your neck," said Jamie Price, CEO of Advisor Group, who was speaking to reporters in a telephone news conference on Tuesday. "We've been keeping a close eye on [GPB] and took some comfort in the audit switch. We know EisnerAmper."

One of the current leading sellers of alternative investments through independent broker-dealers, GPB Capital Holdings has yet to file financial statements with the SEC for two of its largest funds, although both funds crossed industry thresholds for making such information public more than a year ago.

GPB has nine private placements on file with the SEC. The two largest, GPB Automotive Portfolio and GPB Holdings II, both had more than 3,000 investors in May 2017 and had raised hundreds of millions of dollars by that time, according to SEC filings. Both now have more than double that number of investors.

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 filings with the SEC.

GPB invests in auto dealerships as well as waste management businesses.

In August, GPB said it would take a break from raising new money to focus on straightening out the accounting and financial statements of its two large funds. Weeks later, in September, Massachusetts secretary of the Commonwealth William Galvin announced a sweeping investigation into 63 broker-dealer firms selling private placements from GPB.

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