Articles Posted in Royal Alliance

Chicago-based Stoltmann Law Offices, P.C. is currently investigating claims on behalf of TCA Global Credit Fund and TCA Fund Management Group investors involving Royal Alliance advisor Mark Young, and Watts Capital, LLC and Thomas Watts. On May 11, 2020, the United States Securities and Exchange Commission (SEC) filed a civil suit in federal court in Miami, Florida against TCA Fund Management Group and TCA Global Credit Fund.

The SEC complaint seeks to prevent TCA Fund Management Group and the Global Credit Fund from committing ongoing securities law violations and also sought the appointment of a receiver. The SEC alleges that for many years, the TCA Global Credit Fund, through its affiliate TCA Fund Management, intentionally inflated the net-asset-value – or price – of the fund hiding massive losses from investors. The SEC alleges that TCA inflated these values in two ways.  First, the fund recognized revenues that it never actually received. It would essentially book a gain on loan fees prior to actually receiving them and if the loans never closed, TCA would not adjust their books to reflect reality. The second way TCA artificially inflated its books, according to the SEC, was to book investment banking fees it never actually earned, and actually knew in many instances that it would never earn. Basically, the way this scam worked, according to the SEC, is TCA would enter into a contract with a company to perform investment banking services for, let’s say, $100,000.  Instead of waiting to actually perform the services and receive the $100,000 payment, TCA would book the $100,000 as received on their books at the time the contract was executed. The result of these practices was to provide investors with inflated values of these funds. The SEC alleges that these practices violations Section 17(a) of the Securities Act of 1933, 15 U.S.C. Section 77q(a), and Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. Section 78j(b), and Exchange Act Rule 10b-5, 17 C.F.R. Section 240.10b-5; and violations of Sections 206(1), (2), and (4), along with Section 2076 of the Investment Advisers Act of 1940, 15 U.S.C. Sections 80b-6(1), 80b-6(2), 80b6(4), and 80b-7, and Advisers Act Rules 206(4)-7 and 206(4)-8, 17 C.F.R. Sections 275.206(4)-7, 275.206(4)-8.

According to documents field with the SEC for TCA funds, called a Form D, TCA Fund Management Group used numerous FINRA-Registered broker/dealers to sell  investments in the TCA Global Credit Fund for many years including:

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!

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.

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