Articles Posted in Madison Avenue Securities

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.

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