Articles Posted in Cetera Advisors

Stoltmann Law Offices continues to investigate and file cases on behalf of investors in connection with the GPB Capital Funds.  On November 6, 2019, a new lawsuit was filed in the Federal District Court for the Western District of Texas, in Austin, that provides a new level of detail about the scam being run by GPB Capital for the last six years or so. The complaint is filed as a class-action complaint on behalf of an investor, and all similarly situated, in any of the several GPB Capital Funds. The case, Barasch v. GPB Capital Holdings, et al., Case No. 19-cv-01079, alleged civil conspiracy, fraud, and violations of various securities laws. The complaint offers a glimpse into the multiple layers of gross conflicts of interest that permeated, intentionally, throughout the entire GPB Capital universe. From the auditors to the placement agents, at every level of the organization, conflicts existed from which GPB Capital actively sought, and did, capitalize. The complaint alleges that the 8% return guaranteed by GPB Capital was a farce. The truth is, according to the allegations, the 8% distributions were paid with other investor money, or the actual investor’s money meaning it was actually a return OF investment, as opposed to a return ON investment. The complaint references misleading and fraudulent account statements generated by GPB Capital representing these payments as “distributions” when in reality the fund was robbing Peter to pay Paul.

Stoltmann Law Offices has been retained by dozens of investors to purse claims involving GPB Capital Holdings, including the following GPB Funds:

    • GPB Automotive Portfolio, LP

The smoke has been steadily rising from GPB Capital Holdings for about a year at this point. Over the last few months, however, it has been all quite on the GPB Capital front. The main talking points being communicated by GPB Capital to brokers and financial advisors to then deliver to their investor-clients, have been that everything at GPB Capital is fine and that the audited financial statements will be delivered in no time. Well, as the Wizard of Oz said, “Pay no attention to that man behind the curtain.” Just today, InvestmentNews published a story reporting that an executive at GPB Capital has been indicted for obstruction of justice. Nothing happening indeed.

According to a press release issued by the United States District Court for the Eastern District of New York, on Wednesday, October 23, 2019, a superseding indictment was unsealed charging Michael S. Cohn, Managing Director and Chief Compliance Officer with obstruction of justice, unauthorized computer access, and unauthorized disclosure of confidential information. According to the indictment, Mr. Cohn was an employee of the United States Securities and Exchange Commission (SEC) when he left the commission for a position with GPB Capital Holdings. In the course of that transition, Mr. Cohn is alleged to have stolen investigatory files and materials relevant to the ongoing SEC investigation into GPB Capital and then delivered those materials to his brethren at GPB Capital. FBI Assistant director-in-charge William Sweeney was quoted in the press release stating, “When Cohn left the SEC to join GPB, he left with more than his own career ambitions.” What’s worse, when Cohn was interviewing for his job with GPB, he let them know he had this information and shared it. The grand jury indictment  contains allegations, which if proven beyond a reasonable doubt, could land Mr. Cohn in prison for decades.

The fact that GPB Capital hired Mr. Cohn after he told them that he had inside information about the SEC’s ongoing investigation into GPB, is as clear an indication yet that GPB Capital is running an unreliable and highly questionable business, where at a minimum, ethics are of no concern. Investors should be concerned about this latest development because it indicates a few important points. First, it’s an indication that the SEC’s investigation into GPB is still ongoing. Second, the indictment reflects the acts of an allegedly corruptible person who was entrusted at GPB with being the company’s chief compliance officer – a position for the incorruptible. It is staggering that GPB would hire Mr. Cohn after he approached the firm with clearly illegally obtained information and highly confidential documents.

On August 2, 2019, a class action complaint was filed against GPB Capital Holdings and several affiliated entities in the United States District Court for the Southern District of New York, Case No. 19-cv-7250. There are two named plaintiffs, one an investor in the GPB Automotive Fund, there other an investor in the GPB Holdings Fund II. The class action is actually quite limited in scope, broadly alleging that the investors have been damaged by GPB Capital because the funds have collectively failed to provide audited financial statements as required by the private offering memoranda and the Securities and Exchange Commission. The class action complaint has two counts: breach of contract and breach of fiduciary duty. There are no allegations of fraud or other misconduct and the complaint parrots many of the published claims about GPB, including many of the same facts identified on this blog before.

Investors should not be lulled into complacency by the filing of this class action complaint, as if it will be from where their investment losses are recovered. Investors need to continue to honestly assess their individual situations and determine whether their financial advisors or brokers sold them these funds based on misrepresentations or omissions of material fact.  Many of the GPB investors represented by Stoltmann Law Offices have made allegations of unsuitability and breach of fiduciary duty against the brokerage firm responsible for selling GPB Funds to them. Those FINRA arbitration claims also include other alternative investments too, because brokers who sell private placements tend to sell more than just one. Many of our investors have serious concentration issues, with substantial percentages of their assets under management – some near 100% – in alternative, private placements including the GPB Funds.

GPB Capital utilized a network of independent brokerage firms, including Madison Avenue Securities, FSC Securities, Royal Alliance, amongst about 60 others, to sell almost $2 billion worth of their securities to retail investors. Now investors are locked into investments that have been marked down up to 70% in some instances, with no dividends being paid, and with a constant drip of negative news. Brokers are telling their clients not to worry; to sit tight; to wait it out. Advisors are telling investors this will “blow over” and that GPB will be paying dividends again in no time. These “lulling” statements should not be relied on by investors. Brokers and advisors have no more information about what is happening inside GPB Capital than the investors do at this point, and any statement or advice from a broker to “hold tight” is self-serving. Investors should ask their brokers 1) how much money in commissions they were paid to sell them GPB Funds; and 2) ask to see the due diligence file the broker created on GPB prior to selling it. The responses will not be friendly.

The news just keeps getting worse for investors in GPB Capital Holdings. On July 19, 2019, a former GPB Capital business partner sued GPB Capital in Norfolk County, Massachusetts court alleging, amongst other things, that GPB Capital has been engaged in a massive Ponzi-like scheme for some time. The allegations are in connection with a $230 million deal gone wrong, including that this former partner was forced out of GPB Capital after complaining to the SEC about the company’s financial misconduct.  The complaint alleges that GPB Capital uses investor money to prop-up flailing auto-dealerships it owns and also uses investor funds to make interest or distribution payments to other investors – the hallmark of a Ponzi scheme. The complaint alleges that GPB Capital also engaged in an elaborate coverup to cause investors to believe their investments were safe.

As we have discussed on several posts on this cite, GPB Capital has run into trouble in numerous ways. GPB Capital raised almost two-billion dollars from retail investors beginning in 2013 from an array of brokerage firms, including Cetera Advisors, FSC Capital, and Royal Alliance, amongst others. Abruptly in late 2018, GPB Capital’s auditor resigned, which is almost always a bad sign. Then GPB Capital announced it was under investigation by a slew of regulators and law enforcement.  It was then informed by National Financial Services, an affiliate of Fidelity, that it would no longer allow GPB Capital securities to be held on its account statements.  In response to that, GPB Capital rushed to provide an “accurate” Net-Asset-Value (NAV) which reduced the value of its funds by anywhere from 35% to 50%.  These massive markdowns caused sticker-shock when investors received their monthly account statements and they saw the historically “stable” investment suddenly reflecting massive losses.  Investors are now rightly looking at the the financial advisors and brokerage firms responsible for soliciting and selling units in GPB Capital to them.

Brokerage firms have many duties and obligations when they sell clients investments in private placements like GPB Capital Holdings. Initially, a brokerage cannot even approve an offering in a private placement to be sold by their brokers until the firm engages in a due diligence investigation. Only after this investigation meets with the approval of the firm can it sell the investment to their clients. These duties and obligations are encoded in FINRA Rule 2111 Suitability Rule and at least a half-dozen Regulatory Notices, including RN-10-22 which is an opus on brokerage firm due diligence responsibilities to perform due diligence on private placements prior to offering them to firm clients, NASD NTM 03-71 which speaks to a firm’s obligations to vet non-conventional investments, and NTM 05-26 which discusses the vetting of new products.  This vetting process is mired in a massive conflict of interest. Brokerage firms like FSC and Royal Alliance were paid at least 7% commissions for selling GPB Capital.  If the investment never gets past the due diligence step, then the firms and brokers can’t reap those huge commissions!

It is time for GPB Fund investors to seriously consider their legal options. Over the last year, the GPB Capital Funds have been beset by serious issues raising red flags for investors:

  • On April 30, 2018, GPB missed a mandatory filing date with the SEC
  • In August 2018, GPB announced that is was “overhauling” and restating its 2015 and 2016 financials

Stoltmann Law Offices, P.C. has been reporting concerns about the funds offered by GPB Capital for several months now. Our firm now represents multiple clients in FINRA Arbitration proceedings against the brokerage firms responsible for soliciting them to invest in the GPB Funds. Specifically, our clients invested in the GPB Automotive Fund and GPB Holdings Fund II.

On June 21, 2019, it was reported that GPB Capital finally issued valuations on two of its largest funds. Unfortunately for investors, these new valuations are not good. GPB Capital reported a decline of 25.4% for the GPB Holdings Fund II and a whopping 39% decline for the GPB Automotive Fund. It follows that the remainder of the GPB Holdings portfolio of funds will eventually suffer similar write-downs. These valuations are as of year-end 2018, so it is anyone’s guess what these rotting assets are worth as of today. Its truly troubling when private funds like these suffer massive losses when the broader, publicly-traded markets, like the S&P 500, have performed incredibly well for almost 10 years running.

Ongoing accurate valuation is a major problem for these illiquid opaque funds that invest in assets like car dealerships and private garbage collection companies. Stoltmann Law Offices has reviewed numerous GPB Fund materials and the concern is growing that these asset valuations by the company are going to snowball and accelerate into more rapid losses for investors. According to SEC filings approximately 60 brokerage firms sold clients investments in various GPB Capital Funds.  However, the primary sellers of these toxic funds appear to have been Royal Alliance, FSC Securities, SagePoint Financial, and Woodbury Financial Services.

Stoltmann Law Offices, P.C. has been retained by several investors who have their money locked up in one or more of the beleaguered funds issued by GPB Capital Holdings.  Over the last six month, the bad news about GPB Capital has continued to slowly bleed out to the public.  The latest news is deeply concerning and could be the most alarming of all red-flags to date.  On June 17, 2019, it was reported that Fidelity, through its subsidiary National Financial Services, will no longer allow account owners to hold their GPB Capital interests through National Financial Services. This is huge blow to investors. Here’s what it means.

National Financial Services, which is owned by Fidelity, is one of the largest clearing and custodial firms in the world. Dozens, if not hundreds, of brokerage firms use National Financial Services to maintain custody and to clear client investments. National Financial Services’ main purposes, put simply, are to simply process transactions and present accurate values of the securities and investments account owners hold on account statements. These are back-office intensive jobs for which Fidelity/National Financial Services charge nominal transactional fees. In order to present a value for alternative investments like non-traded REITs, private placements, or in this instance, GPB Capital Funds, some value has got to be communicated to Fidelity so that it can then report that value to account holders. This valuation is based on “net-asset value” or “NAV”. Fidelity decided to boot GPB Capital from its platform and advise countless investors and their financial advisors that they will need to transfer their GPB Fund assets from their existing accounts to another custodial firm within 90 days.  Not only does this create a logistical mess for investors and their financial advisors, it really calls into question what GPB Capital is doing and why the company has not provided any values for its various funds to Fidelity. This is a core obligation of any fund – report what its worth to investors!

Fidelity’s decision does not mean GPB Capital funds are worthless. What it means is Fidelity’s patience has worn so thin with GPB Capital that it is kicking it off its clearing and custodial platform. When this latest incident is added to the numerous previous problems with GPB Capital, it can only be looked at as more bad news. Investors should closely consider their options and consider bringing a claim for rescission through FINRA arbitration to get your money back from the brokerage firm that sold these GPB Funds in the first place.  It was bad enough GPB suspended distributions and redemptions.  Then GPB’s auditor quit. Now Fidelity lacks so much confidence in GPB Capital, Fidelity will not even allow GPB Capital to be held on Fidelity/National Financial Services account statements.

The securities fraud attorneys at Stoltmann Law Offices, P.C. are continuing to investigate due diligence and suitability claims against brokerage firms that sold their clients investments in various GPB Capital Holdings offerings.  The most recent news has to do specifically with the Waste Management Fund, which buys and sells private waste haulers and garbage collectors. Not exactly the most glamorous of funds certainly, but new allegations have surfaced that GPB Capital purchased a company called Five Star Carting in March 2017, which has been embroiled in litigation amid allegations of a poor safety record. To make matters worse for GPB Waste Management, according to an InvestmentNews report,  GPB’s director of waste strategy – that is seriously the reported title – is Rod Proto, formally of Waste Management. He was fired from his position as President and COO of Waste Management 1999 and then charged with insider trading in 2003 by the SEC for which he paid a $3.7 million fine and stipulated to a ban from serving as an officer or director of a publicly traded company for five years.  It is unknown at this time if the FBI search warrant or other searches conducted by the New York City Business Integrity Commission – which happens to regulate waste haulers in New York City – has anything to do specifically with the GPB Waste Management Fund. In any event, the continued bad press and regulatory pressure is not good for GPB Fund investors.

Almost weekly more negative news comes out about GPB Capital Holdings. We have written considerably about many of these issues.  Brokers sell private placements like GPB Waste Management Fund, or the more popular GPB Automotive Fund for one reason – commissions. There is no other logical reason and exposure to a particular sector is not an excuse. If an investor needs exposure to the automobile sector, there are hundreds of publicly traded, low-commission options, including common stocks of car companies  or the companies from the automotive supply chain. If an investor is seeking a high-income investment, there are literally thousands of publicly-traded corporate or municipal bond options available at a fraction of the cost of a private placement like the GPB Funds. These private placements offer investors a toxic cocktail of 1) illiquidity, meaning once your money goes in it does not come back out until GPB says it does, 2) speculative risk, meaning the highest risk investment product available, and 3) a poor risk/return profile, meaning the risk you are taking is not being compensated by some potential of a high return. GPB Funds  were simply bad deals for investors. The only people that make out in situations like this are the brokerage firms like NewBridge Securities, FSC Securities, Cetera Advisors, Royal Alliance, and many others, who sold an estimated $1.5 billion of these funds to their clients.  At a 10% commission rate, these brokerage firms generated approximately $150 million in revenue just from selling these speculative and opaque funds.

If you were sold investments in any of the GBP Capital offerings by your financial advisor and wish to know your legal options, please call 312-332-4200 for a no obligation free consultation with an attorney. Stoltmann Law Offices is a Chicago-based  contingency fee firm which means we do not get paid until you do.

Many retail investors who were recommended GPB Capital Holding related investments by their financial advisors are asking the question “What’s next”?  Unfortunately, the answer will likely be unpleasant.  GPB Capital Holdings, LLC is a New York-based issuer of private placements offered under the “GPB” moniker. Over the last several years, GPB has raised at least $1.3 billion dollars from mostly retail investors through eight separate private offerings. These offerings include the GPB Automotive Portfolio, LP along with the GPB Waste Management Fund, and GPB Holdings Fund, I, II, and III, GPB New York Development, LP, and GPB Cold Storage, LP.  The GPB Automotive Portfolio was organized as Delaware limited partnership on May 27, 2013 with an expressed purpose to acquire, operate, and resell auto dealerships. The sale of these Class A units were expressly intended to be sold only to “accredited” investors, as that term of art is defined in Regulation D.

It was disclosed this week that the Federal Bureau of Investigation (FBI) is investigating GPB Capital and made an unannounced appearance at the headquarters last week.  As we have previously discussed , last year, the firm stopped taking in new investor money and ceased distributions.  It also restated its financial statements on top of an investigation by Massachusetts Secretary of the Commonwealth William Galvin.  While the company took great pains to point out that it has not been named in any action by any regulatory authority and it is not the target of any active investigation, the events of recent weeks gives all of the appearances that a major financial disaster is in store for investors in GPB.

Brokers at firms like Royal Alliance, FSC Securities, NewBridge Securities, and Cetera Advisors heavily peddled these high risk investors to investors.  Why?  Because of the fees and commissions. The GPB Fund paid out brokers between 8% and 11% of every dollar sold to clients. So for selling a $100,000 investment in the GPB Fund, brokers and their firms received between $8,000 and $11,000 for this one recommendation.  It is useful to put this extraordinary commission into context with those received for more standard, marketable securities like stocks, bonds, or mutual funds.  Financial Advisors in the traditional brokerage setting employed by an independent broker/dealer like NewBridge Securities, would earn between 0.5% and 1.5% on equity trades or corporate/municipal bonds trades.  Mutual funds, depending on share class, charge sales loaded and back-end fees that can be as high as 4.5%, but ETFs like those offered by Vanguard, are virtually fee-free. Moreover, many brokerage firms offer electronic trading for clients on a per trade basis as low as $4.95 per trade regardless of the amount of the transaction. Crucially, there are no break-point discounts available for private placements, meaning if an investor invests a million dollars, the broker gets the same commission rate. Publicly traded options like mutual funds and UITs, however, offer commission breakpoints; the more money an investor invests, the lower the commission rate. At 8%-11%, there is simply nothing that competes with this level of compensation, which is why many brokers spent their career selling “alternative investments” like GPB.

The investor advocate attorneys at Stoltmann Law Offices, P.C. view the latest news about GPB Capital Holdings as  potentially bad news for investors.  According to published reports, along with the SEC and FINRA, the FBI is now investigating GPB Holdings after an “unannounced” visit to GPB’s New York office last week. According to GPB Capital, along with the FBI, the New York City Business Integrity Commission also paid a visit.

We have written considerably about issues related to GPB Capital Holdings since December 2018 and it seems every month something else happens.  We also have since been retained by investors to pursue claims against the brokerage firms that sold these various GPB Capital funds to them. The one misnomer we continue to see published about clients who invested in GPB Capital Holdings offerings is that these investors were “accredited” or “sophisticated.” These labels are routinely bandied-about whenever an offering like GPB Capital Holdings burns investors.  The fact is, these labels are nothing more than defenses used by the brokerage firms that sell these exempt, private-placement securities to their clients. In fact, an investor usually must qualify as “accredited” to even participate in these offerings as an investor.  According to FINRA Regulatory Notice 10-22 and FINRA Rule 2111, these labels do not obviate the brokerage firm’s obligation to only recommend investments that 1) have been vetted by the firm prior to offering it and that 2) are suitable in light of the client’s investment objectives and risk tolerance. In order for the brokerage firm to adhere to this standard of care, it must satisfy both of these requirements. A brokerage firm cannot rely blindly on the representations made by an issuer like GPB Capital, nor is the disclosure of risks in an offering memorandum sufficient to satisfy the firm’s due diligence obligations which are intended to be gatekeeper in nature.

Our investigation has revealed that NewBridge Securities, FSC Securities, Cetera Advisors, Royal Alliance, and a cacophony of other FINRA registered brokerage firms sold investors units or shares in various GPB Capital offerings. If you were sold investment in any of the GBP Capital offerings and wish to know your legal options, please call 312-332-4200 for a no obligation free consultation with an attorney. Stoltmann Law Offices is Chicago-based  contingency fee firm which means we do not get paid until you do.

CNBC
FOX Business
The Wall Street Journal
Bloomberg
CBS
FOX News Channel
USA Today
abc NEWS
DATELINE
npr
Contact Information