SEC, Finra investigating GPB fund raising: sources

Regulators are making inquiries into GPB and the broker-dealers that sold their fund shares, according to sources

Dec 18, 2018 @ 2:05 pm

By Bruce Kelly

In the wake of a state investigation into broker-dealers selling private placements by GPB Capital Holdings, the Financial Industry Regulatory Authority Inc. and the Securities and Exchange Commission have launched their own investigations, according to sources.

In September, Massachusetts Secretary of the Commonwealth William Galvin announced a sweeping investigation into 63 broker-dealer firms selling private placements from GPB Capital Holdings, which primarily buys auto dealerships.

Since then, both Finra and the SEC have made similar inquiries of broker-dealers, said one brokerage executive who asked not to be identified.

The SEC has also started looking under the hood at GPB Capital, said another industry executive, who also asked not to be identified. The focus of the SEC's questions is the accuracy of disclosures made to investors, the performance of various funds and the distribution of capital to investors, according to the executive.

It is common for national regulators like Finra and the SEC to launch their own investigations after one or more states announce an investigation.

GPB has raised $1.8 billion from investors who bought the high-commission private placements. Another brokerage executive, who also asked not be named, said that the loads for the private placements were 12% with two parts: a 10% commission to the broker and broker-dealer and 2% in offering and organization costs.

A spokeswoman for GPB, Dana Taormina, said the firm had no comment about any investigations launched by Finra and the SEC. Both regualtors also declined to comment.

GPB was launched in 2013 and became one of the fastest growing private placement firms that sell shares in their funds through independent broker-dealers.

GPB has spent much of this year dealing with a variety of problems.

Two of GPB's private placements are required to file financial statements with the SEC, and both earlier this year missed filing deadlines.

The firm is also facing a private lawsuit with a former business partner who allegedly failed to follow through with a $40 million auto dealership sale.

And i— August, the firm said it was taking a break from raising new money to focus on straightening out the accounting and financial statements of its two large funds. Soon after, it said it was restating 2015 and 2016 financial statements of certain funds as part of an accounting review. Last month, the firm's auditor, Crowe LLP, resigned.

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