The Securities and Exchange Commission (SEC) has charged three individuals and their affiliated companies with running a scam.
The Ponzi-like scheme raised over $1.7bn (£1.25bn, €1.4bn) from securities issued by a New York-based asset management firm and registered investment adviser, GPB Capital.
Around 17,000 retails investors were impacted, of which roughly 4,000 are described as ‘seniors’.
In its complaint, the SEC is seeking disgorgement of ill-gotten gains plus pre-judgement interest and penalties.
Source of funds questioned
GPB owner and chief executive David Gentile and Jeffry Schneider, the owner of GPB’s placement agent Ascendant Capital, are accused of lying to investors about the source of money used to make an 8% annualised distribution payment.
According to the SEC complaint, Gentile and Schneider; along with Ascendant Alternative Strategies, which marketed GPB’s investments, told investors that the funds came exclusively from monies generated by GPB’s portfolio companies.
But the US watchdog alleges that investor money was actually used to pay portions of the distribution payments.
GPB Capital and Gentile; with the assistance of Jeffrey Lash, a former GPB managing partner, also allegedly manipulated the financial statements of certain limited partnership funds managed by GPB Capital to perpetuate the deception.
The SEC further claims that misrepresentations were made to investors by GPB Capital and Ascendant Capital about millions of dollars in fees and other compensation received by Schneider and Gentile.
The scheme continued for more than four years, in part, because GPB Capital kept investors in the dark about the limited partnership funds’ true financial condition.
On top of the alleged financial subterfuge, GPB Capital is also accused of violating the whistleblower provisions of the securities law by including language in termination and separation agreements that impeded individuals from coming forward to the SEC.
It also reportedly retaliated against a known whistleblower.
Cornerstone
Richard Best, director of the SEC’s New York regional office, commented: “As alleged in our complaint, the defendants told investors that they would be paid distributions from profits of the portfolio companies when, in reality, many of the payments were being made from investors’ own funds.
“This action shows our continued pursuit of those who deceive investors and conceal their misconduct to reap profits for themselves.”
Jane Norberg, chief of the SEC’s office of the whistleblower, added: “Whistleblower protections are a cornerstone of the SEC’s whistleblower programme.
“The charges filed today reinforce the Commission’s commitment to protecting whistleblowers from retaliation and attempts to stifle the free flow of information to the Commission about possible securities law violations.”
