Arizona strips license rep who 'fraudulently sold' GPB private placements

The Arizona Corporation Commission has revoked the license of an investment advisor representative based in Scottsdale who sold more than $10 million of high-risk private placements issued by GPB Capital Holdings. That happened after the commission found the rep, Luke M. Johnson, “fraudulently sold” the securities and made “made multiple misrepresentations to investors about the partnership interests,” according to a statement by the commission. 

From September 2014 through approximately July 2018, Johnson, doing business as Legend Capital, sold a total of approximately $10.3 million of GPB Capital limited partnerships to at least 95 investors, the majority of whom were Arizona residents, according to the order, which is dated from September but made public Oct. 9.

He was also ordered by Arizona to pay $229,241 in restitution and a $20,000 administration penalty for the securities fraud.

Founded in 2013, GPB Capital saw incredible growth selling its high-risk private placements through dozens of independent broker-dealers and hundreds of reps, including Johnson. Five years later, GPB had raised $1.8 billion from wealthy clients looking for yield in a decade when interest rates were next to zero.

The firm had more than a half-dozen funds and targeted a steady 8-percent annual return to investors. Led by David Gentile and broker-dealer chief Jeff 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 SEC. In February 2019, the FBI raided GPB offices in Manhattan.

Gentile and Schneider this summer were convicted of conspiracy to commit securities fraud and wire fraud and securities fraud, and Gentile was convicted of wire fraud by a 12-person jury after a seven-week trial in federal court in downtown Brooklyn. They are waiting to be sentenced.

Johnson made a variety of misrepresentations to clients, according to the Arizona order.

“Johnson and Legend Capital misrepresented to at least three investors that investments in GPB Capital limited partnership interests were solid, safe, and/or low risk,” the order read. “According to GPB Capital Subscription Booklets, the limited partnership interests were actually highly speculative investments which involved a high degree of risk of loss of the entire investment.”

Johnson also told at least two GPB investors he had also invested in the private placements when he had not, according to the order, and he also failed to inform other clients that GPB had been accused of running a Ponzi scheme.

High-risk alternative investments like GPB required investors who buy them to be classified as accredited clients, meaning they have $1 million or more in assets. According to the order, Johnson falsified the net worth of some clients and used untrue information about at least three clients who bought GPB private placements, which typically carried high commissions of 7 percent to the rep who sold them.

"Luke made a business decision to resolve this matter and is pleased to put it behind him," said John's attorney, Alan Baskin. "He understands that the court-appointed GPB Monitor, who is working to maximize the recovery for its investors, has already recovered $1.3 billion and is seeking the recovery of additional funds." 

The Financial Industry Regulatory Authority Inc. suspended Johnson for 18 months from the securities industry over similar claims found in the Arizona order.

“Johnson's recommendations for customers to purchase limited partnership interests were unsuitable because each required investors in these investments to be accredited investors, as Johnson knew, none of these customers were,” according to a statement by Finra on Johnson’s BrokerCheck profile.