A ruling by a federal appeals court clears the way for GPB Capital Holdings to move into receivership, according to InvestmentNews.
The US Court of Appeals, Second Circuit, sided with the Securities and Exchange Commission, which has accused GPB of defrauding thousands of investors. The ruling upholds a decision by the U.S. District Court for the Eastern District of New York a year ago granting the SEC’s request to convert the ongoing monitorship over GPB and multiple affiliated entities into a receivership.
GPB founder and CEO David Gentile appealed that decision in an attempt to continue to have the firm remain under a monitor, but his bid was denied by the appeals court.
“We conclude that the district court did not abuse its discretion in converting the monitorship into a receivership,” according to a court filing. “Accordingly, we affirm the district court’s orders and vacate the stay.”
In August, a federal jury convicted Gentile and co-defendant Jeffry Schneider of securities fraud and conspiracy charges in what was alleged to be a $1.7 billion dollar scheme. Prosecutors said Gentile and Schneider conspired to mislead investors about the source of money used to pay their monthly distributions and about the amount of revenue from two GPB private equity funds. Both were accused of using money from the private equity funds to cover shortfalls and enrich themselves.
According to the SEC’s complaint, the defendants “lied to investors about the source of money used to make an annualized distribution payment to investors. Investors were allegedly told that the distribution payments were paid exclusively with monies generated by GPB Capital’s portfolio companies, but GPB Capital actually used investor money to pay portions of the annualized distribution payments. To perpetuate the deception, GPB Capital allegedly manipulated the financial statements to give the false appearance that the funds’ income was closer to generating sufficient income to cover the distribution payments than it actually was. ”
The scheme affected some 17,000 investors, about 4,000 of them seniors. The appeals court ruling is seen as a significant step forward in helping them get some of their money returned to them.
“This is progress for GPB investors and their financial advisors, and that’s important, but it’s still unclear when investors get their money back,” said one senior brokerage executive, who spoke privately to InvestmentNews. “Investors were sold a product that was misrepresented. It’s been a half dozen years since this came to light. How long should it take to clean up GPB?”
In 2021, the federal court appointed a monitor to oversee GPB Capital. The following year, the SEC moved to convert the monitorship into a receivership because of GPB’s alleged breach of the monitor order.
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