GPB Capital accused of financial misconduct by business partner

Auto dealership owner who sold a majority stake to the firm said it is running a Ponzi-like scheme

Jul 26, 2019 @ 1:00 pm

By Bruce Kelly

One of GPB Capital Holdings' business partners is suing the issuer of high-risk private placements, claiming the firm engaged in "serious financial misconduct" and tried to push him out after he complained to the Securities and Exchange Commission, according to a published report.

Since 2013, GPB has raised $1.8 billion from investors through sales by reps at independent broker-dealers. GPB's investment strategy is to buy auto dealerships and waste management businesses with the intent of generating high, single digit returns for clients. Meanwhile, brokers pocketed commissions of 7%.

In a complaint filed in Norfolk Superior Court in Massachusetts on July 19, David Rosenberg, chief executive of Prime Automotive Group, accused GPB Capital Holdings of running a Ponzi-like scheme, in which it used money from investors to prop up the performance of auto dealerships it owns, as well as to finance payments to other investors, according to the Boston Globe. A copy of Mr. Rosenberg's complaint was not immediately available to InvestmentNews.

(More: Investors start to sue broker-dealers that sold GPB private placements)

The lawsuit alleged that GPB executives and attorneys "were engaged in extensive efforts to cover up the misconduct in order to lull the investors in the GPB funds into thinking that their investments were safe and that any losses were due to legitimate business events rather than their own misconduct," according to the Globe's report.

Mr. Rosenberg sold a majority stake in Prime for $235 million to GPB in 2017, according to the Globe.

Mr. Rosenberg "appropriately reported evidence of financial misconduct within GPB Capital that he and his team uncovered during the course of their duties," said Cosmo Macero, a spokesman for Mr. Rosenberg. "GPB leadership not only ignored Mr. Rosenberg's call for immediate corrective steps, they took retaliatory action by failing to make a contractually required payment to him."

An attorney for GPB told the Globe that the company is involved in a contract dispute with Mr. Rosenberg over payments for his remaining holdings and said the other complaints in the lawsuit are baseless.

"This is a simple contractual issue between Mr. Rosenberg and the defendants. The remaining allegations are inflammatory and not relevant to the action, and the company intends to defend the lawsuit on the merits," GPB attorney Tab K. Rosenfeld said, according to the Globe.

A spokeswoman for GPB, Kelly Whitten, said the firm had no immediate additional comment when contacted Friday by InvestmentNews.

GPB is more than a year past its deadline to make public its audited financial statements for two of its largest funds. In June, it reported to its investors that the value of its funds had declined, some dramatically. Meanwhile, GPB has revealed it is also being investigated by a variety of regulators.

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