Purshe Kaplan Whistleblower Exposes GPB
A whistleblower has recently exposed the improper approval of GPB Capital Holdings by Purshe Kaplan. GPB primarily deals in private placements related to auto dealerships—including Massachusetts-based Prime Automotive Group—and the waste management industry. The FBI raided its offices on February 28, 2019 accompanied by the New York City Business Integrity Commission. FINRA and the SEC are now also investigating the beleaguered firm, which recently stopped paying its investors their expected returns. In a December 20, 2018 letter to investors, the firm said that this was only temporary and that it was in the process of adapting its payment distribution structure, which would soon be based on company performance. This recent development is problematic considering that accredited investors often expect greater returns given that they have taken more risks with these unregulated securities.
Private placements can be fraught with risk because they are not regulated by the SEC, while stocks and bonds are. Those who invest in private placements are generally considered to be more “sophisticated” investors who are expected to do their own due diligence and are thus granted fewer protections from GPB. Meanwhile, brokers receive large commissions, ranging from 8-12%.
Private placements are exempt from SEC regulation because of Regulation D, a provision of the Securities Act of 1933, which allows companies to raise capital through private advertising, offering securities to accredited buyers. If companies are eligible for “Reg. D”, they must file Form D, “a brief notice that includes the names and addresses of the company’s promoters, executive officers and directors, and some details about the offering, but contains little other information about the company.
In July 2017, GPB filed a lawsuit against one of their former operating partners, Patrick Dilbre. But when Dilbre asserted counterclaims in March 2018, he called GPB “an elaborate and manipulative Ponzi scheme” and the alleged true purpose of GPB’s original lawsuit came to light. It was an alleged diversion to deflect attention away from various other allegations. GPB’s controllers, David Gentile and Jeffrey Schneider, were allegedly using GPB funds to personally enrich themselves. They expensed some of these personal expenses to GPB and some to the auto dealerships in which GPB had invested. Gentile also allegedly hired own father for accounting services—some of which were never provided—while paying him $100,000 per month.
In September 2018, a former compliance officer at Purshe Kaplan filed a federal lawsuit against Purshe Kaplan in which she wrote:
In or around January 2016, Defendants instructed Plaintiff to review one particular product, GPB Holdings II, LP. After extensive due diligence, Plaintiff provided written support that members of senior management at the sponsor of the product, GPB Capital Holdings, LLC, were utilizing investor funds to monetize personal business interests and did not recommend that this product be approved for the PKS [Purshe Kaplan Sterling] platform. [Source: Toni Caiazzo Neff v. PKS Holdings, LLC, et. al., E.D. Pa. 18-cv-01826].
Led by CEO J. Peter Purcell, Albany, NY-based brokerage firm Purshe Kaplan has over 1200 registered representatives across 530 offices nationwide, and the company is based around the concept of open architecture, which is supposed to foster an environment of increased trust between clients and brokers. It does not have its own investment products, but does offer “alternative investments” as part of their slate of services, acknowledging that “[i]nvesting in alternative investments is speculative, not suitable for all clients, and intended for experienced and sophisticated investors who are willing to bear the economic risks of the investment,” while touting “attractive risk-adjusted return potential.”
Also in September 2018, the Massachusetts Secretary of the Commonwealth began investigating the 63 securities broker-dealer firms—including Purshe Kaplan—that sold GPB-controlled partnerships. Two months later, GPB’s auditor, Crowe LLP, resigned, citing, “perceived risks that Crowe determined fell outside of their internal risk tolerance.”
In June 2019, National Financial Services, a clearing firm under the auspices of Fidelity, announced they were removing GPB from its platform because the investment product had “no clear value” in their opinion. Following this event, the value of Partnership in GPB decreased by at least 25%.
This year has been tumultuous for GPB, and the fallout will likely continue. If you have invested in or are considering investing in private placements, you could be at risk for not only investment losses, but also fraud. If you are a current or former Partner in GPB and feel you were misled, please don’t hesitate to contact securities attorneys who are waiting to hear your claim. Call (212) 658-1501 or email email@example.com.