David Gentile

David Gentile’s GPB Capital announced a staggering devaluation of its funds from $1.8 billion to $1.1 billion. This took place in June. Our impression at the time was that the $700 million dollar write down was a necessary prelude to GPB releasing its restated, and long-awaited, 2015 and 2016 financial statements. GPB had promised to release these SEC-required statements on September 30, 2019.

On September 10th, the eve of the somber remembrance of the 9-11 attacks, GPB issued a notice stating that it would not meet its promised date of September 30, 2019. That GPB Capital sought to bury this announcement in the 9-11 news cycle shows GPB’s nervous PR strategy. The timing was no different than releasing bad news late Friday afternoon or during the weekend.

Reporting on the delayed financials last week, Investment News quoted an e-mail written by GPB’s director of communications Mr. Brian Weisenberger:

The firm’s managing director of communications, Brian Weisenberger, wrote in an email that “In response to the allegations Mr. Rosenberg made, which GPB Capital is defending against, GPB Capital’s Audit Committee has proactively engaged a law firm to independently investigate the accusations.”

“The need for an independent investigation has led to further audit delays,” Mr. Weisenberger wrote, “as both the audit committee and the auditor of the affected partnerships are requiring that the independent investigation be completed prior to releasing the audited financial statements.”

David Rosenberg filed a lawsuit against GPB in which he made explosive allegations of financial irregularities inside of GPB’s Automotive group. Rosenberg is in a position to make his allegations as he sold GPB a majority interest in his Prime Automotive Group for $265 million. As part of the deal, Rosenberg remained in place as CEO of Prime Automotive. Once GPB took over Prime, Rosenberg alleges that he witnessed serious financial irregularities taking place inside of GPB’s Automotive component. Rosenberg’s concerns were such that he went to the US Securities & Exchange Commission. When he told GPB executives that he had gone the SEC, GPB retaliated, he alleges, by reneging on a multi-million dollar payment he was owed. Rosenberg’s complaint lays out very specific and detailed allegations.

Sept. 16, 2019 UPDATE: GPB Capital Holdings announced today that David Rosenberg has been relieved of his duties as CEO of Prime Automotive. Rosenberg’s replacement as CEO is David Westfall. Read the GPB press release. We note that GPB Managing Partner Jovan Sivan was quoted in the press release and Mr. Gentile was not. Why was the announcement of a key executive being relieved of his duties and replaced not made by CEO David Gentile?

Why would GPB Capital hire lawyers to defend against the allegations in Rosenberg’s lawsuit, and, also hire a separate law firm “to independently investigate the accusations” as spokesman Weisenberger states? GPB already knows if the allegations are true or false.

GPB’s independent legal team appears to be part of a larger pretrial defense effort to determine how GPB would fare during discovery and at trial. Such efforts are always part of damage control: Is it cheaper to offer Rosenberg a confidential pretrial settlement or will GPB’s independent legal team determine that GPB can fight the case and win a jury trial? Such pretrial exercises are common in high stakes business litigation. These exercises are analogous to software companies writing software programs and then hiring independent hackers to search for vulnerabilities and see if the new software can be hacked. GPB’s independent legal team will look to tear apart the work done by GPB’s legal defense team. A mock trial is usually held using juror surrogates.

For GPB to claim that Mr. Rosenberg’s lawsuit is a barrier to issuing its restated 2015 and 2016 financial statements seems non-sequitur — unless the restated financial statements could become damaging documents Rosenberg can introduce as evidence at trial. Spokesman Weisenberger seemed to affirm this when he stated:

“The need for an independent investigation has led to further audit delays,” Mr. Weisenberger wrote, “as both the audit committee and the auditor of the affected partnerships are requiring that the independent investigation be completed prior to releasing the audited financial statements.”

GPB’s internal audit committee and its independent auditing firm EisnerAmpner have both apparently taken the decision to delay signing off on, and releasing, the 2015 and 2016 financial statements until the independent legal team reviews the situation. The implications of this decision are disturbing.

GPB’s previous auditing firm Crowe LLP resigned in November 2018. Crowe resigned “due to perceived risks that Crowe determined fell outside of their internal risk tolerance parameters” according to a letter released by David Gentile. It seems GPB’s new auditing firm of EisnerAmper has dug in its heels on the matter of the Rosenberg allegations. Further, GPB’s Chief of Compliance Michael Cohn would have likely taken part in this decision on behalf of GPB.

GPB’s $700 million dollar devaluation and its latest refusal to release its 2015 and 2016 numbers until an independent investigation is completed suggests that EisnerAmper and Michael Cohn are asserting themselves internally at GPB. The FBI raid earlier this year on GPB’s NYC HQ and its Five Star waste management company put all parties on notice that there is no more room for obfuscation or evasion. Where does this leave David Gentile? Does he need to resign as CEO?

GPB is now saying that it will release the 2015 and 2016 financial statements by the end of 2019. However, many of us watching the GPB meltdown take place have learned to not rely upon any statements made by GPB Capital Holdings. We’ll believe it when we see the restated numbers released under EisnerAmper’s signature.

David Rosenberg’s Complaint. Note: Please hover your cursor over the document to invoke the page up/page down controls at the bottom of the page frame: