The FBI's investigation of GPB Capital Holdings made headlines in InvestmentNews last week. But it is the investigation by New York City regulators that oversee the city's private trash industry that got the attention of news website ProPublica.
GPB Capital raises money to buy businesses by getting financial advisers to sell GPB private placements to wealthy clients. According to its website, GPB Capital has raised $1.5 billion in capital and looks to buy "income-producing private companies."
While the bulk of its investments are in auto dealerships, GPB Capital also buys private trash haulers, including the 2017 acquisition of a company called Five Star Carting.
This was the focus of the March 7 ProPublica article, which raises myriad concerns for the dozens of independent broker-dealers that sold GPB private placements.
Among those concerns are Five Star's troubled labor and safety record, which included a previously reported $400,000 settlement in a wage-related class-action lawsuit. "Records showed that government inspections found unsafe trucks with faulty steering and brakes at Five Star," the article states.
"GPB Capital's director of waste strategy is Rod Proto, former president and COO of Waste Management, who was fired in 1999 and then charged with insider trading by the SEC," according to the article. "In 2003, Proto agreed to pay a $3.7 million fine as well as to a five-year ban from serving as an officer or director of a public company."
When asked by InvestmentNews about the ProPublica article, a GPB spokeswoman, Kelly Whitten, said: "GPB Capital has disclosed information regarding Mr. Proto's history as well as his role within GPB's Waste Management strategy with its selling group."
Last week, GPB said that both the FBI and the New York City Business Integrity Commission arrived at the firm's Manhattan offices the previous week "to collect materials" pursuant to a search warrant by the U.S. Attorney's office. One of the commission's roles is to regulate the trash hauling industry.
Scott Silver, a plaintiff's attorney, said he had spoken with two dozen investors who bought GPB. Many of them had large positions in the company, he said.
The details about GPB's trash hauling business led Mr. Silver to wonder what exactly the due diligence and compliance executives at the firms that sold the product knew about Five Star Carting.
"With these illiquid products like private placements, the advisers sometimes don't know, truly, what is internally in the assets," Mr. Silver said. "They see a high commission and the broker-dealers tells them the due diligence has been completed. But did the due diligence committees and the firms really understand where the money was being invested?"
GPB is the subject of other investigations. For example, it is being investigated by the Securities and Exchange Commission as well as the New Jersey Bureau of Securities, according to the company.
The focus of the SEC's inquiry was the accuracy of disclosures made by GPB to investors, the performance of various funds and the distribution of capital to investors, according to an industry source. The firm has previously said it has been working on enhancing its oversight and auditing practices.
In September, Massachusetts Secretary of the Commonwealth William Galvin announced a sweeping investigation into 63 broker-dealer firms selling private placements from GPB.