Investors start to sue broker-dealers that sold GPB private placements

Clients allege lack of suitability and due diligence by B-Ds

May 7, 2019 @ 2:39 pm

By Bruce Kelly

Individuals are starting to file arbitration claims against broker-dealers that sold private placements packaged by GPB Capital, which raised $1.5 billion from investors and is under investigation by state and federal authorities.

GPB is facing a variety of hurdles right now. In addition to being investigated, the firm is more than a year overdue registering its largest funds with the Securities and Exchange Commission and making appropriate financial disclosures.

GPB Capital was primarily supposed to be buying auto dealerships and waste-management businesses that were going to kick off attractive yields for clients.

GPB has told the broker-dealers that sold its private placements that it is getting its financial house in order and completing an audit of its various funds.

Nany GPB investors are waiting in the dark to see what the future reveals about the private placements, according to plaintiffs' attorneys.

But at least two investors have filed arbitration claims through the Financial Industry Regulatory Authority Inc. system aimed at the broker-dealers that sold the product. While GPB Capital has a sister company that is a broker-dealer and acts as a distribution arm for its private placements, Ascendant Alternative Strategies, it does not sell directly to investors. Instead, Ascendant Alternative Strategies relies on outside broker-dealers to sell its private placements to wealthy, retail clients.

One attorney, Sam Edwards, said that his client, a 63-year-old nurse, invested $175,000 in a GPB Capital private placement and bought the investment from Arkadios Capital.

Last month, Mr. Edwards' firm, Shepherd Smith Edwards & Kantas, filed a Finra arbitration claim against Arkadios and its CEO, alleging that the firm misrepresented the private placement which was not suitable for his client.

"This is in the very early stages," Mr. Edwards said, adding that the lack of transparency and understanding of the ultimate value for the various GPB funds was preventing many clients from moving forward with claims against broker-dealers that sold the product.

David Millican, CEO and owner of Arkadios Capital, said that the firm sold "a very small amount" of GPB private placements. Any claim against him personally was "bogus" as he did not know the client, he said.

Another attorney, Scott Silver, said that last month he had filed a $400,000 arbitration claim for a client who bought GPB private placements from SagePoint Financial Inc., one of the broker-dealers in the Advisor Group network.

"There was a lack of due diligence," Mr. Silver said. "Clients were assured that the assets were strong, their principal was secure and the private placements would provide an income stream for years to come."

A spokesman for Advisor Group, Chris Clemens, did not immediately have a comment for this story.

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