ProPublica today reported that the FBI and the BIC raided the offices of Five Star Carting, a waste management firmed owned by Scientologist David Gentile’s GPB Capital Holdings. As we have been reporting, GPB Capital is under investigation by the SEC, FINRA, the FBI, and the BIC.
The raid on Five Star Carting occurred last week and was coincident with the FBI and the BIC showing up unannounced at GPB’s New York Office to seize documents.
From the ProPublica article:
The FBI and New York City regulators raided the corporate offices of a major private trash hauler last week, the latest sign of trouble for an industry under fire.
Most disturbing from the ProPublica article:
GPB Capital’s director of waste strategy is Rod Proto, former president and COO of Waste Management, who was fired in 1999 and then charged with insider trading by the SEC. In 2003, Proto agreed to pay a $3.7 million fine as well as to a five-year ban from serving as an officer or director of a public company. GPB Capital did not respond to questions about Proto’s role in the firm. Proto’s role in the firm. https://gpb-cap.com/portfolio/
New York’s BIC was created to fight organized crime in the waste management business, or what is called “carting” in New York. Carting is a traditional bastion of organized crime and yet Gentile’s GPB Capital Holdings invested in this business. Why would GPB make such risky investments in a market with lingering ties to organized crime? And certainly GPB’s hiring of Rod Proto with his past insider trading does not help GPB’s credibility.
According to its website, GPB Capital owns these cartage firms:
Categories: The Scientology Money Project
I remember the days before the BIC took over. Every small business had to pay these garbage waste companied ( each controlling a specific area of blacks) whatever was charged, not having any choice. Even one small bag of garbage put out on the curb by a small office store front would cost far too much. I had paying theses fees and feeling threatened if they tried to take their small bags home. They’d still be charged. Wondering if the mob is involved in this legal matter. Wouldn’t suprise me.
it has always been known in NYC that the Mob has controlled private waste management.
As I think I said when you interviewed me for your original article about GPB Capital back in January: trying to “roll up” small companies in the waste management industry at this point is a fairly bad idea. As an aside, it’s just one of a number of really dubious investment strategies that Gentile is mixed up in. I wouldn’t be buying car dealerships, another one of his strategies, given rising interest rates that are likely to slow already flat vehicle sales, but I digress. And let’s not even get started about the whole audit issue.
The waste management business was rolled up 20+ years ago by Waste Management, Browning-Ferris Industries and a couple others. They were sophisticated operators that bought all the quality local and regional players decades ago. The 2-3 large companies that control 50%-plus of the waste management business today still have deal teams that are looking for any quality companies that emerge and they have the bucks to pay a premium for quality acquisition targets. Thus, the companies that a small fund like GPB can acquire are most likely the picked-over leavings that the big guys have already looked at and said no to. They may have passed on them for reasons of growth prospects or for the possible stench of bad behavior, but they almost certainly looked at Five-Star at least once in the past and decided not to go there.
On the one hand, let’s be clear that Gentile has some serious problems on his hands, namely the massive sales practice violations he’s been accused of, and the audit disaster. But on the other hand, it is not yet clear whether he is directly involved in whatever the Feds are investigating at Five-Star. He may be wholly innocent, owning a portfolio company that’s gone off the reservation without his knowledge. That has certainly happened before in the history of private equity investing. Or he may not be wholly innocent, either turning a blind eye to problems at Five-Star or perhaps actively participating in anything that’s going on. If the feds had raided only GPB Capital and not the portfolio company, that would strongly suggest that Gentile and his firm were the problem. But the fact that both entities had a visit from the friendly local feds is inconclusive, and we’ll have to wait to see what further action is taken here. Again, this is just one of the serious issues that Gentile is facing, so I’m not minimizing the level of concern around the big picture. And it may yet turn out that this raid is a GPB Capital issue and not a Five-Star issue. I’m sure we’ll find out in due time.
Thanks for your comments John P. As you mentioned when I interviewed you for my first story, it doesn’t make sense to roll up waste management companies and car dealerships. As a general statement, Gentile’s strategy and portfolio of companies seems incoherent to me. I can’t see the strategy or logic. In my view, Gentile has been engaged in a breakneck pace of acquisitions for their own sake ahead of everything else while dropping out internal compliance at GPB.
It is possible for a company to grow too fast and for a CEO to be unable to manage that growth. Gentile’s exorbitant commissions to his broker-dealer network caused the cash to pour into GPB Capital. This in turn allowed Gentile to branch out from his core competence of acquiring automotive dealerships and move into unrelated areas such as healthcare, debt, biotech, and waste management.
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Gentile was initially in trouble with the SEC and FINRA over compliance issues in the 4th quarter of FY 2018. As Dr. Wasel said to me, “You don’t buy compliance, you practice it.” But what we see now is David Gentile in a mad scramble to buy compliance with the SEC and FINRA on his back — and this goes back to GPB’s 2015 and 2016 numbers. GPB’s auditor Crowe resigned late last year after indicating GPB fell outside of Crowe’s risk tolerance parameters.
According to the records online, GPB purchased Five Star Carting on January 1, 2017 in a leveraged buyout. This seems curious for GPB to use an LBO when it purportedly had so much cash. In July 2017, GPB purchased two more waste management companies and rolled them into Five Star. According to a press release:
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There have now been two raids on GPB by a joint task force of the FBI and the BIC. GPB tried to spin one of the raids as an “unannounced visit” in a letter from Gentile. Technically, a raid is the execution of a search warrant. The Feds and NYC want documents from GPB and Five Star.
In his letter to investors of March 1, 2019 Gentile said GPB had been cooperating with requests for information made by the authorities. However, the two raids made last week on GPB and Five Star argue that GPB was not cooperating to the extent the FBI and BIC wanted. Thus, Gentile’s definition of “cooperating” was far from the way in which the FBI and the BIC define cooperation.
As you indicated, Gentile may not be guilty of anything. However, Gentile’s former director Patrick DiBre has alleged that GPB is a Ponzi scheme in his counterclaim against GPB having sued him for fraud and conversion. At least seven securities law firms are soliciting GPB investors online. Taken altogether, the indicators are not good for GPB.
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Jeff Lash is one of David Gentile’s on-again/off-again partners in the automotive dealership business. As we covered, Lash sued Gentile in October 2019 dropped the suit one month later. Lash reversed course and defended Gentile against DiBre’s allegation that GPB is a Ponzi scheme.
A puff piece on Lash compares he and David Gentile to Warren Buffet: https://cantinautoinsider.com/private-equity-and-the-auto-industry-one-mans-vision/
We’ll see how that works out.
From the DiWire article of March 7, 2019:
While insisting it is not the target of any active investigation, the joint FBI and BIC raids last week show that GPB and one of its companies are the target of an active investigation.
Five Star Carting and Patrick DiBre are unrelated and present two different matters the authorities are investigating. The GPB v. DiBre and DiBre v. GPB lawsuits are another issue. Over against Five Star and DiBre, the SEC and FINRA are investigating GPB. GPB has at least for serious issues going on simultaneously.
That is a very good question Jeffery…. why would someone who is supposedly so “ethical” be involved in something what is widely known to be suspicious and reportedly connected to “the Mob”. I would think that he would want to be ao above board as to not drag the name if the CoS anywhere near this. But then again, CoS does require its members to bring home the bacon so to speak. So many agencies involved here. I’m curious to aee if this becomes a door opener to an Org or bigger.