Attorney General Alan Wilson announced today that the Securities Division (the “Division”) within the Office of the South Carolina Attorney General has filed a regulatory action against New York-based investment adviser GPB Capital Holdings, LLC (“GPB”) and others for their alleged involvement in a $1.8 billion securities fraud scheme that has affected approximately 17,000 investors across the United States – including at least 320 South Carolina investors.
The regulatory action alleges that GPB, New York-based broker-dealer Ascendant Alternative Strategies, LLC (“AAS”), Texas-based third-party marketing liaison Ascendant Capital, LLC (“Ascendant”), and principals David Gentile of Florida and Jeffry Schneider of Texas (collectively, the “Respondents”) violated the South Carolina Uniform Securities Act in a scheme that defrauded investors who purchased limited partnerships in various private equity funds controlled by GPB.
Civil complaints were filed in state court today by state securities regulators in Alabama, New Jersey, and New York. In addition to the South Carolina regulatory action and states’ civil filings, Georgia, Illinois, and Missouri, initiated simultaneous administrative proceedings with investigative assistance from Texas, all of which coincide with action taken by the U.S. Securities and Exchange Commission. Also today, the U.S. Attorney’s Office for the Eastern District of New York arrested Schneider and others, and Gentile has agreed to surrender to authorities, all on related criminal charges. Massachusetts previously filed an administrative complaint against GPB Capital Holdings.
“These individuals solicited millions of dollars from citizens in South Carolina by false promises and misleading statements, and the Attorney General’s Office has taken action to bring these individuals to justice,” said Attorney General Wilson. “They now face the full force of authorities determined to hold each of them accountable for their role in this well-orchestrated, nationwide investment scheme. South Carolina will continue to work with our partners in state and federal law enforcement and regulatory agencies to serve justice on those whose unlawful actions threaten the integrity of our financial industry and place investors at risk.”
The alleged scheme revolved around the sale of unregistered, high-commission limited partnership interests in a series of alternative-asset investment funds managed by GPB. The funds were targeted exclusively to “accredited investors,” whose net worth or income qualified them to participate in private placement securities transactions that are exempt from SEC and state registration.
The state actions allege that from 2013 through late 2018, the Respondents allegedly lured investors with false and misleading promises that the GPB Funds would pay regular monthly distributions, at an 8% annualized rate, that were “fully earned” or “fully covered” by cash flow from the portfolio companies, which included those in the automotive retail, waste management, information technology, and healthcare sectors. In reality, the actions allege, the Respondents increasingly relied on “Ponzi financing” that used new investors’ capital contributions to pay prior investors the monthly distributions, thus reducing the amount of capital a GPB fund could deploy for productive investments and, in turn, significantly reduced the long-term value of the investments.
The Respondents further harmed investors by repeatedly diverting and misappropriating fund assets for their own benefit, including to enrich themselves, pay family members, support luxurious lifestyles that include private jet travel, and even the purchase of a Ferrari for Gentile’s personal use, the complaints allege. The Respondents also allegedly created backdated and misleading “performance guarantees” that inflated the reported income of some of the GPB funds.
Approximately 320 South Carolina investors purchased limited partnership interests in various GPB Funds, with a total investment of more than $28.6 million.
The Division is seeking a permanent bar against Ascendant Alternative Strategies, LLC and civil monetary penalties from the Respondents.
South Carolina extends its appreciation of the efforts of state securities agencies in Alabama, Georgia, Illinois, Missouri, New Jersey, New York, and Texas in today’s actions. South Carolina also recognizes the cooperation of the U.S. Securities and Exchange Commission and the U.S. Attorney’s Office for the Eastern District of New York.
The Office of the South Carolina Attorney General is charged with protecting investors from investment fraud and regulating the securities industry in South Carolina. Investors should contact the Securities Division with questions about any investment opportunity or person offering securities for sale before investing in a product. To file a complaint regarding a product or person selling them, please go to http://www.scag.gov/registering-a-complaint. The Office of the South Carolina Attorney General can be reached at 803-734-3970 or through its website at www.scag.gov.