An article in the Boston Globe by correspondent Allison Hagan presents the details of a new lawsuit against GPB Capital, the troubled New York City private equity firm owned by Scientologist David Gentile. GPB’s investors were shocked after GPB was raided by the FBI earlier this year. Investors were then staggered to their core when GPB was forced last month to announce the devaluation of its holdings from $1.8 billion to $1.1 billion. $700 million in investor money is gone.

GPB Capital now faces what we consider a blockbuster lawsuit filed by GPB insider David Rosenberg, the CEO of Prime Automotive Group. GPB purchased a passive majority interest in Prime in 2017 for $235 million plus future monies to be paid on a call option. Rosenberg’s lawsuit contains a wealth of details about the alleged inner workings of GPB Capital.

Located in Massachusetts, Prime Automotive is the largest car dealership in New England with annual sales of $3.2 billion per reports. However, according to the lawsuit, the value and viability of the dealerships is threatened by GPB’s “massive” financial misconduct. Claims of self-dealing, kickbacks, and lavish management fees Gentile paid himself and others in his inner circle from investor funds are just part of the lawsuit.

Rosenberg’s lawsuit states that existing investors were paid with funds from new investors. If true, this goes to Patrick Dibre’s allegation in his lawsuit against GPB Capital that the firm is also a Ponzi scheme. Like Rosenberg, Dibre is a former GPB insider. We now have two former GPB partners who both allege that GPB is a operating like a classic Ponzi scheme.

The deal between GPB and David Rosenberg called for Rosenberg to be paid additional monies in the future. Rosenberg called his option and was to be paid $5.9 million by GPB on July 1, 2019. The promised monies were not paid and Rosenberg filed a breach of contract of lawsuit.

Among other claims, Rosenberg alleges GPB’s failure to pay him is retaliation for his having sought to, “address fraudulent and wrongful activity by the Defendants parent company and affiliates.” Rosenberg’s suit further alleges that GPB has engaged in a “massive securities fraud” and details a litany of alleged financial misconduct by GPB Capital going back “to at least 2014.”

David Rosenberg’s most stunning revelation is that he went to the US Securities and Exchange Commission with details of GPB’s financial misconduct. When GPB was informed of this, Rosenberg avers, the firm “refused to make the required $5.9 million payment to the Plaintiff” and sought to replace him as the CEO of Prime Automotive.
GPB Capital’s attorney Tab K. Rosenfeld told the Boston Globe:

“This is a simple contractual issue between Mr. Rosenberg and the defendants. The remaining allegations are inflammatory and not relevant to the action, and the company intends to defend the lawsuit on the merits.”

Having followed the GPB Capital story for sometime now, our view is that Rosenberg’s lawsuit answers many of the questions about what, exactly, has been going on inside of GPB Capital. When we add the details from Patrick Dibre’s lawsuit an even more clear picture emerges of the inner workings of GPB. These details, particularly those offered by Rosenberg, seem to explain why GPB Capital has not been able to produce its 2015 and 2016 SEC-required financial statements.

David Rosenberg et. al. v. GPB Capital et. al.