WASHINGTON, D.C. (February 4, 2021) – The North American Securities Administrators Association (NASAA) today announced that seven state securities agencies have filed regulatory actions 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.

Civil complaints were filed in state court today by state securities regulators in Alabama, New Jersey, and New York alleging that GPB Capital, 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, Jeffry Schneider of Texas, and Jeffrey Lash of Florida (collectively “the defendants”) violated state securities laws in a scheme that defrauded investors who purchased limited partnerships in various private equity funds controlled by GPB. 

In addition to the civil filings, Georgia, Illinois, Missouri and South Carolina initiated simultaneous administrative proceedings with investigative assistance from Texas.  These court and administrative actions coincide with action taken by the U.S. Securities and Exchange Commission. The United States Attorney’s Office for the Eastern District of New York arrested Schneider and Lash this morning and Gentile has agreed to surrender, all on related criminal charges. Massachusetts previously filed an administrative complaint against GPB Capital Holdings.

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.

“These actions highlight the risks associated with investing in the private securities marketplace where the lack of transparency and liquidity makes it ripe for bad actors. Because there is currently no federal or state review process for deals offered in this market, the private markets can be a very risky place for Main Street investors,” said Lisa A. Hopkins, NASAA President and West Virginia Senior Deputy Securities Commissioner. “This joint effort in a complex investigation is typical of the aggressive, cooperative and coordinated actions of state securities regulators and demonstrates the value of state and federal authorities working together to benefit investors nationwide.”

“The enforcement actions by my fellow state regulators demonstrates how states work collaboratively to protect the integrity of the financial markets across North America,” said Joseph P. Borg, Alabama Securities Commission Director and chair of NASAA’s Enforcement Section. “The states put forth a tremendous effort to identify and to halt any further victimization.”

The state complaints allege that from 2013 through late 2018, the defendants 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 complaints allege, the defendants 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 defendants 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 included private jet travel, and even the purchase of a Ferrari for Gentile’s personal use, the complaints allege. They defendants also allegedly created backdated and misleading “performance guarantees” that inflated the reported income of some of the GPB funds.

The states are seeking court-ordered monetary penalties, investor restitution, disgorgement, and permanent injunctive relief barring the defendants from violating securities laws or participating in the sale or issuance of securities in the future.

NASAA applauds the efforts of state securities agencies in Alabama, Georgia, Illinois, Missouri, New Jersey, New York, South Carolina, and Texas in today’s actions. NASAA 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.

Further detail on each state action can be found here: Alabama, Georgia, Illinois, Missouri, New Jersey, New York, and South Carolina.