Michael Cohn

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GPB Capital Holdings made headline news in the Wall Street Journal yesterday. However, the headlines were not good.

GPB’s Chief Compliance Officer Michael Cohn, a former SEC official, was arraigned for obstruction of justice and two other criminal charges. Cohn, 59, was released on a $250,000 bond.

The criminal charges as outlined in the Grand Jury’s superseding indictment against Michael Cohn (emphasis ours):

Count 1. Obstruction of Justice: In or about and between August 2018 and February 2019, both dates being approximate and inclusive, within the Eastern District of New York and elsewhere, the
defendant MICHAEL COHN, together with others, did knowingly, intentionally and
corruptly obstruct and impede, and attempt to obstruct and impede, an official proceeding, to
wit: an investigation conducted by the United States Securities and Exchange Commission
(“SEC”).

Count 2. Obtaining Information from a Government Computer: In or about and between September 2018 and October 2018, both dates being approximate and inclusive, within the Eastern District of New York and elsewhere, the defendant MICHAEL COHN did knowingly and intentionally access, and attempt to access, one or more computers without authorization and exceed authorized access, and thereby did obtain information from a department and agency of the United States, to wit: the SEC, for purposes of commercial advantage and private financial gain.

Count 3: September 2018 and October 2018: In or about and between September 2018 and October 2018, both dates being approximate and inclusive, within the Eastern District of New York and elsewhere, the defendant MICHAEL COHN, being an employee of the SEC, did knowingly and intentionally publish, divulge, disclose and make known information coming to him in the course of his employment and official duties, which information concerned and related to the processes and operations of the SEC, to wit: information regarding an investigation conducted by the SEC’s Division of Enforcement, in a manner and to an extent not authorized by law.

The Cohn Timeline:

August 2018 to February 2019: The Obstruction of Justice occurs.

September 2018 to October 2018: Cohn illegally obtained information on the SEC’s investigation of GPB from an SEC computer he was not authorized to access.

September 2018 to October 2018: Cohn knowingly and intentionally published, divulged, disclosed SEC information to officials at GPB Capital. According to the prosecutor, he did this in the course of interviewing for a $400,000 a year position with GPB. 

October 2018: Cohn begins working at GPB Capital. However, GPB does not issue a formal press release on his employment as the firm’s Chief Compliance Officer until:

January 2019: GPB Capital issues a press release on Michael Cohn coming aboard. A page on GPB Capital’s website (now erased and deindexed) GPB said of Cohn:

Mr. Cohn brings over 30 years of compliance, risk management, and investment experience to his role at GPB Capital. Most recently, in his position as a Securities Compliance Examiner and Industry Expert at the U.S. Securities and Exchange Commission’s (SEC) Enforcement Division – Asset Management Unit, he investigated and supported Enforcement Actions against Registered Funds and Private Funds for violations of U.S. Securities Laws.

Prior to joining the SEC, Mr. Cohn was the Chief Risk Officer at Cynthion Partners, a Private Fund, where he most notably supported the restructuring of the firm’s portfolio and created an enhanced investment and risk management process. Previously, Mr. Cohn has worked throughout the Investment Banking and Asset Management Industry at firms such as Goldman Sachs and Merrill Lynch as well as at several global hedge funds and CTA firms, including his own.

Mr. Cohn holds a Bachelor of Arts degree in Economics from Rutgers College and a Master of Business Administration in Finance from the Wharton School of the University of Pennsylvania (with Academic Distinction). He is also a Chartered Financial Analyst.

March 2019:  The FBI raids the offices of GPB Capital and its wholly-owned Five Star Waste Management, a New York City trash hauling company. GPB spins the raid as “an unannounced visit by the FBI” with which it cooperated. Well yes, when the FBI unexpectedly shows up with a search warrant one has no choice but to cooperate. The FBI raid is, presumably, where the information Cohn illegally obtained was discovered. It is likely that SEC computer forensic specialists confirmed Cohn’s unauthorized access.

October 23, 2019: The news of Michael Cohn’s arraignment on criminal charges is announced in the media.

October 2019: GPB Capital Holdings erases Michael Cohn’s webpage from its website and deindexes all mentions of his tenure at GPB from the internet to the greatest extent possible. Like other former GPB executives, Michael Cohn has become a nonperson on GPB’s website.

October 2019: Bloomberg announced yesterday that GPB Capital appointed Aileen Doherty as its new Chief Compliance Officer. How was this able to happen so quickly?

Summary: Michael Cohn’s alleged criminal activities remained hidden from August 2018 until his arraignment on October 23, 2019. This is not a long time at all and makes Cohn yet another unsuccessful white collar criminal. Now, at age 59, he is facing a 20 year prison sentence and the forfeiture of his criminally-obtained assets if convicted.

Our Opinion: In our view, it makes sense for the Feds to take down Cohn first as he is the weakest link in the chain in what we think is clearly a conspiracy as Count 1 of the indictment against Cohn phrases it:

In or about and between August 2018 and February 2019, both dates being approximate and inclusive, within the Eastern District of New York and elsewhere, the
defendant MICHAEL COHN, together with others, did knowingly, intentionally and corruptly obstruct and impede, and attempt to obstruct and impede, an official proceeding, to wit: an investigation conducted by the United States Securities and Exchange Commission (“SEC”).

GPB Capital Holdings has had a high turnover of executives. However, the remaining key executives have been there for many years and form an inner core. As the “new guy” Cohn might be very amenable to a plea deal if he cooperated with federal prosecutors. In any event, to some outsiders this looks like GPB set Michael Cohn up for a fall by enticing him with the promise of a big salary and perks. “Michael, help us out here. If you could just take a peek at what they have on GPB it would help all of us when you came aboard.” Of course, this is pure speculation on our part. However, it makes no sense, at least to us, for a 59 year old man approaching retirement to engage in this sort of activity. In a statement to CNBC, Cohn’s unnamed attorney insisted Mr. Cohn was innocent:

“Mr. Cohn is innocent of the charges and entered a not guilty plea today in court. He looks forward to vindicating himself at trial,”

We can imagine the conversation with the Feds: “Mr. Cohn, you’re 59 years old and looking at 20 years for Obstruction of Justice. We have the evidence. A place like the Federal Penitentiary in Marion, Illinois is not a good place for a man your age. Why don’t you make it easy on yourself and your family and cooperate? Just tell us everything about everyone at GPB Capital Holdings. You’re not really the one we’re after anyway.” Again, pure speculation on our part.

The fact that Michael Cohn came in so late to the party at the already scandal-plagued GPB and yet became the first to be criminally indicted raises serious questions about his judgment: Was he an old man trying to swim with the sharks at GPB or was he knowingly complicit as alleged in the indictment?

That GPB Capital threw Cohn under the bus immediately and denied any knowledge of the allegations against him was unsurprising. GPB exhibited the same knee-jerk reaction when Fidelity Investments told GPB broker-dealers in June 2019 that it would have to deplatform GPB Capital Holdings in 90 days if it could not determine the true value of GPB’s Holdings. GPB reacted to the threat of deplatforming by issuing a statement in which it admitted to a devaluation in its holdings from $1.8 billion to $1.1 billion. A shocking loss of $700 million was suffered by GPB’s investors.

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Two former GPB Capital Holdings partners — Patrick Dibre and David Rosenberg — have ongoing civil lawsuits against GPB. Cohn’s arraignment only serves to strengthen the accusations made by Dibre and Rosenberg that GPB is a dishonest firm engaged in illegal business practices. Both lawsuits have alleged that GPB operates as a Ponzi scheme.

David Rosenberg lawsuit against GPB Capital.

Patrick Dibre lawsuit against GPB Capital.

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Investment News reported on an e-mail from GPB’s hired damage control expert Nancy Sterling. This comment sounds like it could have come straight from the Church of Scientology:

GPB Capital “was stunned to learn today that a Federal Grand Jury in the Eastern District of New York had issued an indictment against” Mr. Cohn, the company’s spokesperson, Nancy Sterling, wrote in an email. “GPB Capital immediately relieved Mr. Cohn of his duties as CCO, and replaced him with Aileen Doherty, a veteran chief compliance officer.”

Scientology routinely refuses to speak to any charges made against it and instead claims that former members who expose its activities were “expelled long ago for not meeting the high moral and ethical standards of the Church.”

In our view, we think GPB was stunned about the charges only because Cohn had been caught. This has dire implications for GPB. The Bloomberg article noted:

Cohn, 59, disclosed the inside information while interviewing at GPB Capital Holdings LLC and accepted an offer for the new job four days after his last day with the government in October 2018, a prosecutor told a judge in Central Islip, New York, in a letter. Cohn had worked for the SEC’s asset management unit since 2014, according to his LinkedIn profile.

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