David Gentile, founder and CEO of GPB Capital Holdings, and Jeffry Schneider, broker-deal chief, were founder guilty on all fraud counts they faced on Thursday morning in a seven-week trial in federal court in downtown Brooklyn.
The 12-person jury found Gentile guilty of all five counts he faced; conspiracy to commit securities fraud, conspiracy to commit wire fraud, securities fraud, and two counts of wire fraud.
Schneider was found guilty of three counts of fraud he faced; conspiracy to commit securities fraud, conspiracy to commit wire fraud, and securities fraud.
During the trial the federal court room was often packed with family friends and onlookers but today barely a dozen people turned up for the verdict. Onlookers said that after the first count of guilty was read, a woman sobbed, with her moans growing louder after each count.
Onlookers added that attorneys for Gentile and Schneider plan to appeal the verdict. Sentencing is set for October 24.
More to come.
Founded in 2013, GPB Capital saw incredible growth selling its high risk private placements through dozens of independent broker-dealers and five years later had raised $1.8 billion from wealthy clients looking for yield in a decade ago when interest rates were next to zero.
The firm had more than a half-dozen funds and targeted a steady 8% annual return to investors. Led by Gentile and broker-dealer chief Schneider, GPB first started ringing alarm bells six years ago, when it came to light that the company and its largest funds had failed to make timely required filings, including audited financial statements, with the Securities and Exchange Commission.
In February 2019, the FBI raided GPB offices in Manhattan. Two year later, the Justice Department, along with the SEC charged Gentile, Schneider and another senior executive, Jeffrey Lash with a number of fraud charges, including creating a Ponzi-like scheme and securities fraud, wire fraud and conspiracy.
Lash pleaded guilty last year and testified this month against his former partners, hoping for a lenient sentence.
The federal charges related to a years-long scheme to defraud more than 10,000 investors by misrepresenting the source of funds used to make monthly distribution payments and the amount of revenue generated by three of GPB’s investment funds.
When sentenced, Gentile, 57, and Schneider, 55, each faces up to 20 years in prison.
GPB was the general partner of several investment funds that raised and invested capital in a portfolio of private equity investments. GPB worked with Ascendant Capital, a broker-dealer founded by Schneider, to market the GPB funds to investors.
Gentile and Schneider worked closely together on the operation and marketing of GPB funds, receiving regular updates as to the funds’ performance.
Between August 2015 and December 2018, Gentile and Schneider engaged in a scheme to defraud investors and prospective investors in several GPB funds through material misrepresentations and omissions, according to the U.S. Attorney’s office.
Specifically, Gentile and Schneider, both individually and through employees at Ascendant Capital, represented to investors that the funds would make a monthly distribution payment that would be fully covered from operations, meaning that the companies purchased by the funds would be sufficiently profitable for the payments to be made from the companies’ cash flow, without drawing from capital raised by investors, according to the U.S. Attorney’s Office.
But when the funds’ performance lagged, the defendants tried to disguise the shortfall with fraudulent, back-dated documents and paid investor distributions out of investor capital, according to the U.S. Attorney’s Office. Ultimately, investor capital was used to pay for a significant portion of the distributions made to investors. Gentile and Schneider were aware that the GPB Funds were underperforming and authorized the fraudulent distribution payments.
"The outcome is correct, but it's disappointing that FINRA had ample opportunity to investigate the merits of clients' allegations in these claims, including the testimony in the three investor arbitrations with hearings," Jeff Erez, a plaintiff's attorney representing a large portion of the Stifel clients, said.
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