The 2021 SEC Form ADV for GPB Capital Holdings, LLC was recently released. Scroll down to read it. The numbers tell the story of hundreds of million of dollars lost. It is also clear that Scientologist and criminal defendant David Gentile’s massive Ponzi scheme is being wound down by court-appointed monitor Joe Gardemal.
The 2021 GPB Capital ADV states that the firm has $1,218,600,173 Assets Under Management (AUM). This is a >$500 million loss from the almost $1.8 billion raised from 17,000 investors. We now know that GPB Capital’s investors lost 12% right off the top in undisclosed and hidden fees paid to Gentile, Schneider, and GPB’s Broker-Dealers.
Assuming $1.8 billion in investment dollars, these hidden fees cost investors a staggering $216 million. This criminal plunder is an outrage conducted by the now-indicted conmen David Gentile and Jeffry Schneider. These hidden fees paid for the luxury living of these two con artists and grifters who will, predictively, exchange their mansions for prison cells in the near future as a return on their investment in crime.
In 2020, GPB Capital’s AUM was stated as $238,637,198 . This low number was due to the evasive tactics being used by David Gentile in which he claimed that most of GPB’s assets were in funds that counted as Registered Assets Under Management (RAUM) and were therefore not subject to disclosure. It was only after Gentile and Schneider were indicted, arrested, booked, and released on bond that their accounting games and refusal to file mandatory SEC filings stopped. The court-appointed monitor stepped in, took over the company, and put an end to the systemic concealment of fraud by Gentile and Schneider.
As alleged in the complaint by the Commonwealth of Massachusetts and other lawsuits, Gentile and Schneider used shell companies and other concealments and evasions as ways of hiding the enormous profits they reaped and the losses they inflicted upon GPB’s investors.
GPB Capital sold 28 of the 29 car dealerships in its Automotive Portfolio to Group 1. The sale amount was $854.2 million.
When this sale is deducted from the $1.2 billion shown in GPB’s 2021 ADV, the firm’s AUM is reduced to $364 million. More significantly, the sale of the Automotive Portfolio means that GPB Capital lost its main source of profits and income. All of the Automotive cash flow is gone.
While it would seem that the $854.2 million from the sale of the GPB Automotive Portfolio would be redistributed back to the investors who paid into that fund, it is not that simple. For example, the actual net-net profit from the sale is not known. There were expenses related to selling the GPB Automotive Portfolio:
A. All debt had to be repaid. This includes debt for floor plan loans, i.e. the money GPB Automotive borrowed to purchase inventory from automotive manufacturers for the 29 dealerships that were sold.
B. The costs of the sale include commissions and other fees paid to third parties that worked on the actual sale. The sale was complex because GPB Capital split its automotive dealerships into many different parts. For example, while the dealerships were businesses they did not own the land they sat on. Therefore, the dealerships had to pay rent for the land. The financing, repair, collision centers, reinsurance sales, and other parts of the dealerships were all separate businesses. This self-serving arrangement created more ways for David Gentile to pocket money at every turn. Therefore, the sale of Automotive’s many businesses generated additional expenses as many different experts were required to effect the sale of this convoluted system. Valuation experts, due diligence teams, lawyers, bankers, real estate professionals, escrow companies, and other specialists were needed.
C. We do not know how much money GPB Automotive owed to the car manufacturers for floor plan loans, i.e. loans used to purchase inventory from the manufacturers. We also do not know how much in fees the car manufacturers were entitled to when they approved the sale of the dealerships. The manufacturers would need to perform due diligence, licensing the new buyer, and engage in other duties to finalize the sale and transfer of the licenses. GPB Automotive would have had to bring property taxes current on the land and buildings as well.
D. Capital gains have to be paid on any profits made from the sale of the dealerships. This becomes convoluted because GPB Capital split its automotive dealerships into many different businesses. The dealerships were businesses. However, they did not own the land they were on and paid rent. The financing, repair, collision centers, and other parts of the dealerships were all treated as separate businesses.
E. In order to sell its Automotive Portfolio, GPB Capital had to pay former GPB Automotive CEO David Rosenberg $30 million to settle his lawsuit against GPB’s Automotive Fund. The is another $30 million in investor money gone due to David Gentile’s stupid and obstinate refusal to pay Rosenberg the $5.9 million in options to which he was contractually entitled. This $30 million would be paid from the Automotive Fund.
As stated, GPB Capital has to fund its ongoing operations from the net profit made by selling its Automotive Portfolio. Moreover, there are other factors involved:
1. GPB Capital still faces a lawsuit filed by the US Securities and Exchange Commission. This is addition to lawsuits filed by the States of New York, Massachusetts, Illinois, Alabama, Georgia, New Jersey, Missouri, and South Carolina. These civil suits have been stayed during the pendency of the criminal trial against co-defendants David Gentile, Jeffry Lash, and Jeff Lash.
The SEC and State lawsuits seek to recover damages on behalf of investors. The SEC lawsuit also seeks the disgorgement of profits and civil forfeitures.
The SEC and the States suing GPB Capital can go into court and demand that the money from the sale of the Automotive Portfolio not be transferred or otherwise conveyed or spent pending the outcome of their respective lawsuits.
2. Maddeningly, GPB Capital Holdings is obligated to use investor money to pay for the criminal defense of Gentile, Lash, and Schneider. This obligation, buried in the fine print, was a condition most investors unknowingly agreed to when they invested and signed the papers. This should serve as a serious warning to consult with an attorney to review contracts before making any significant financial investment.
3. In addition to this, the use the FINRA Broker Check to look at the broker’s history is a simple way to do a quick check on any broker before meeting with them or even taking their call. A quick FINRA check of Jeffry Schneider would have shown a checkered history of disciplinary actions against this conman and grifter who is now indicted. In 2021, FINRA moved against Schneider and revoked his license. FINRA Broker Check says of Schneider:
SCHNEIDER ENGAGED IN DISHONEST OR UNETHICAL BUSINESS PRACTICES IN THE SECURITIES INDUSTRY BY 1) EMPLOYING A DEVICE, SCHEME, OR ARTIFICE TO DEFRAUD; 2) BY MAKING UNTRUE STATEMENTS AND OMITTING MATERIAL FACTS NECESSARY TO MAKE THE STATEMENTS MADE, IN THE LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY ARE MADE, NOT MISLEADING; AND 3) ENGAGING IN AN ACT, PRACTICE, OR COURSE OF BUSINESS WHICH OPERATES OR WOULD OPERATE AS A FRAUD OR DECEIT UPON ANY PERSON.
4. As a condition of the GPB Automotive sale, $45 million was required to be placed into an escrow account to indemnify the purchaser Group 1:
Further, at the closing of the Transaction, $45 million of the Purchase Price was deposited into escrow as a contingent reserve to be used, if necessary, to compensate the Purchaser for any post-closing indemnifiable losses pursuant to the terms of the Purchase Agreement, with 50% to be released to the Selling Entities 12 months after the closing of the Transaction and the remainder to be released to the Selling Entities 24 months after the closing of the Transaction, subject to pending claims, if any. The Purchase Agreement contains customary representations and warranties made by each of the parties, and the Selling Entities and the Purchaser have agreed to indemnify one another against certain damages, subject to certain exceptions and limitations.
5. Former GPB Automotive exec Patrick Dibre won his motion for a summary judgment against GPB Capital Automotive. This cost GPB Capital Automotive what we estimate to be tens of millions of dollars. In reading the court ruling, there was clearly incompetence on the part of David Gentile and Jeff Lash.
Patrick Dibre was the first person to publicly call out GPB Capital Holdings as a Ponzi scheme in his lawsuit against the firm. Dibre was also the first person who was willing to openly take on the Sicilian entrepreneur David Gentile in a bare-knuckle legal fight. Gentile’s belligerence arguably cost investors $20 million plus legal fees.
6. GPB Capital’s Broker-Dealers are losing a record number of FINRA arbitration hearings. The law firm of Iorio Altamirano LLC recently posted this information on its blog:
Through 2021, GPB Capital investors have won over $2.4 million in monetary awards in 10 out of 12 (over 83%) arbitration claims that have proceeded to a final hearing. Investors have six years to file arbitration claims; Investors who purchased any GPB private placement offerings in 2016 through a broker-dealer need to act now to preserve their legal rights. The recent sale of assets by GPB Automotive Portfolio, LP, does not guarantee significant distributions for investors.
7. GPB Capital’s Broker-Dealers can file lawsuits against GPB Capital, Jeffry Schneider, and David Gentile to recover their losses in FINRA arbitrations. There are most likely arbitration agreements in place to prevent the B-D’s from suing GPB and its principals. However, GPB Capital could still lose substantial amounts in arbitration due to the alleged fraud, bad faith, self-dealing, and misrepresentations it made to its Broker-Dealers.
On a related note, overturning an agreement to arbitrate due to fraud is actually a quite complex legal matter for the courts to decide. This matter goes far beyond the scope of this blog and requires lawyers specializing in arbitration to discuss and offer their learned opinions on.
In Markowits v Friedman, 2016 NY Slip Op 07932 (2d Dep’t Decided on November 23, 2016), the court stated:
a “broad arbitration provision is separable from the substantive provisions of a contract such that the agreement to arbitrate is valid even if the substantive provisions of the contract were induced by fraud… The issue of fraud in the inducement affects the validity of the arbitration clause only when the fraud relates to the arbitration provision itself, or was part of a grand scheme that permeated the entire contract” for which the plaintiff “must … establish[] that the agreement was not the result of an arm’s length negotiation, or the arbitration clause was inserted into the contract to accomplish a fraudulent scheme.” (See the blog post at Meyer Suozzi)
Given the byzantine world of arbitration, it is impossible to predict anything. GPB’s Broker-Dealers were quick to sell investors GPB’s funds and then pocket their fat commissions checks. The B-D’s were greedy and withheld crucial facts from investors. In our opinion, the B-D’s were not quite as sleazy as GPB Capital. That is the best we can say about these sharks.
We note that arbitration has become the crack cocaine of courts, cults, corporations, and criminal enterprises. Arbitration in America is a world unto itself that seems created to favor those who wrote the contracts calling for arbitration.
As outlined above, there are major hurdles to cross when it comes to the investors in GPB Automotive finally getting some of their money, if any, back. The lawsuits alone could take years. Alternately, a court-appointed receiver could negotiate settlements. It requires a great deal of work and time to wind down a large private equity firm whose owner and principals have been criminally charged. We wish the investors all the best and hope they make some kind of recovery of their hard-earned money.
It is clear that GPB Capital is being wound down and its assets sold off:
* A 40 acre parcel of land in the Port of Newark owned by GPB Cold Storage was recently sold, or “offloaded” as one report phrased it. GPB’s CEO Rob Chmiel stated in a recent press release that the money from the sale will be distributed to GPB Cold Storage investors. However, if the $78 million valuation for this parcel is correct, the price would be reduced by a reported $15 million dollar remediation required as the site once served as a landfill.
Prior to the sale of the land, GPB Cold Storage would have had to pay for a full scientific site study that sampled, characterized, and mapped the full extent of the contamination before it could sell the property. Contaminated properties have to be sold at a greatly reduced price which allows the buyer to pay for remediation, and remediation can take years depending upon the extent and type of contaminants.
For instance, subsurface plumes can spread a great distance. If these plumes contain the really bad stuff like benzene, excene, cadmium, lead, etc, the cost and time to remediate skyrockets.
* GPB Automotive’s one remaining dealership, a Subaru lot, is to be sold off. There are certain conditions to be met first, but GPB Automotive is effectively gone. GPB Capital once boasted, and correctly so, that it was in the Top 10 of automotive dealerships in the US. Now it can only sell you a Subaru. And even then that too will end.
* As reported by the New York Times Pro Private Equity, GPB Capital sold its Alliance Physical Therapy healthcare component to “Chicago-based healthcare investment firm Beecken Petty O’Keefe & Co., which does business as BPOC.”
* As reported by ProPublica, GPB Capital’s Waste Management Portfolio, located in New York City, was a complete dumpster fire that lost 80% of its value — which is in excess of $70 million according to our research. In our opinion, most of the Waste Management Portfolio money may have went to organized crime. We say this because it is impossible to lose 80% hauling trash in NYC unless one is utterly incompetent or the mob is plundering it. We think the mob was involved because the FBI — along with the New York City Business Integrity Commission — raided GPB’s Five Star Carting corporate office. This was concurrent with the FBI’s raid on GPB Capital’s corporate office on Long Island.
* It would seem that GPB Capital’s Healthcare Fund will be the next asset to be put on the block for sale. This fund was formed when GPB purchased Health Prime in 2018. The WSJ Pro on that acquisition:
GPB Capital Holdings acquired a majority ownership stake in Health Prime International, a provider of practice-management and information-technology services to U.S. medical practices. Based in National Harbor, Md., Health Prime provides services such as revenue-cycle management, electronic health record documentation, transcription and practice management to 1,500 health-care providers in more than 55 specialties, according to the company’s website.
GPB’s Healthcare Fund and its products have received good reviews in the media. And yet, as one of our sources told us, this is an extremely competitive market in which prices are being chased down. Acquisitions are highly sought after as it is easier to acquire a competitor and its clients than to slug it out in sales. Some analysts see the size of the market as going to $60 billion annually by 2027. The market is also shifting more and more to Cloud-based services. We think GPB Capital can get a good price for its Healthcare assets.
The New York Times stated the present situation for GPB’s investors:
But for now, GPB Capital says on its website that investors aren’t permitted to redeem, liquidate or surrender their interests in the investment vehicles.
The SEC’s lawsuit against GPB Capital states:
Since its founding in 2013, GPB Capital has raised in excess of $1.7 billion for at least five limited partnership funds from approximately 17,000 retail investors nationwide, approximately 4,000 of whom are seniors. Nearly all of the $1.7 billion raised is still at risk: in 2018 GPB Capital suspended all redemptions and distributions and, according to a recent regulatory filing, GPB Capital’s assets are far below its obligations to the investors
Until the final accounting is done years from now, no one knows how much investor money GPB Capital swindled; squandered on bjets and birthday parties for David Gentile; lost in bad deals; wasted on sweetheart deals made with Gentile’s fellow Scientologists and “special friends”; paid to organized crime; and spent on massive legal fees. The number is in the hundreds of millions at present and will go even higher in future as the many lawsuits go to trial or are settled.
Four GPB Capital related questions that remain outstanding for the Scientology Money Project’s ongoing investigation into the firm:
1. A leaked FBI memo stated that an informed source said $100 million in Russian mob money was deposited into a US private equity fund. Was this fund GPB Capital?
2. Did the $103 million dollars spent by Scientologist-owned LLC’s to make real estate purchases in Clearwater come from GPB Capital? This land was purchased covertly after Scientology dictator David Miscavige became infuriated when he was rebuffed in his attempt to purchase a parcel of land in Downtown Clearwater owned the Clearwater Aquarium. Where did the $103 million come from to make these purchases? We continue to ask if it the Russian mob money mentioned in the leaked FBI memo? The timeframes fit for this theory, and, Russian mob money was the seed money for GPB Capital Holdings as we have documented.
3. Many of these Clearwater land purchases made by Scientologist were made at as much as 5X over market prices. This was like play money spent on real estate that offered no return on investment. Who has $103 million to waste in that way?
4. Coincident with these land purchases, Scientologist Larry Feldman’s Riverwalk project in Tampa was suddenly cancelled. GPB Capital had publicly stated that it would fund the project with $70 – $105 million. If Riverwalk was cancelled, this freed up money for other land purchases. Did David Gentile divert the money to Itzhak Zano’s LLC’s and the other LLC’s owned by Scientologists? Our previous reporting on the Riverwalk cancellation showed a personal relationship between David Gentile and Larry Feldman:
A July 2018 article in Business Observer informed readers that GPB Capital Holdings had committed to fund the launch of the 53 story condo project in Tampa:
Feldman says GPB Capital could provide all of the necessary equity to launch the project, which would amount to between $70 million and $105 million, based on traditional commercial real estate lending standards. It’s expected that Feldman, Two Roads, Tower Realty Partners and others may contribute equity to Riverwalk Place, as well.
In this same article, Larry Feldman praised his partners at GPB Capital Holdings. Feldman did so without disclosing that he was a Scientologist as were GPB’s CEO David Gentile and then Managing Director Manuel Vianna. Feldman:
We’ve known the principals of GPB for some time, many years actually,” says Feldman CEO Larry Feldman, who also is from New York originally. “They came into the project initially as a bridge lender, and then a partial equity partner, and over time, their involvement has expanded from a relatively modest investment to a greater role.”
GPB Capital’s involvement came to light in April, when Feldman and Two Roads unveiled a long-awaited Gensler design for the $350 million tower. Two Roads joined the project officially as its residential developer a month earlier.
GPB Capital Holdings 2021 ADV:
GPB.Capital.2021.ADVCategories: The Scientology Money Project
Great reporting. The depth of deception is maddening.
“Do as thou wilt shall be the whole of the law”.
That’s their jam.
Not surprised.
Perhaps read the GPB Automotive Portfolio Annual 10k published last week. It has adopted a liquidation style accounting that sets out the current position of the Fund. They write that it can take up to two years to liquidate the fund. a lot of uncertainty as to the exposure to Civil lawsuits. A lot of interesting information contained within this 10K
Jeff, this was (as usual) an impressively thorough job of digging on your part.
There aren’t any really high quality numbers on Health Prime that I can find, but it appears to be somewhere between $100 million and $200 million in revenue, with 250-500 employees. Some sources suggest the company has more employees than that, but the databases that usually do a good job on these things are all in that range.
At 3x revenues, you could expect to see this bringing in $500 million when sold, maybe even a bit more. The challenge is that people in the EHR space are all going up against Epic, which did $3.3 billion in 2020, probably $3.5 or $3.6 billion in 2021. When you’re 3% to 5% of the size of the major player in the market, that’s really going to cramp your style.
Insurers are pushing for standardization in exchanging medical records. I had a medical procedure recently that resulted in an extra radiology procedure because the doctor couldn’t access the records electronically from another hospital, which burned $750 of my and the insurance company’s money, to redo radiology done only a few weeks previously. That kind of commoditization might seem to favor little guys who can compete on price, but in practice it doesn’t usually. That would depress valuations for Health Prime.
Also, GPB’s presumed looting of the cash generated by Health Prime is a concern for investors, because it likely hobbled the company’s ability to invest in R&D to fuel growth. That’ll also affect valuations.
But at least they didn’t drive the company into the ground the way they did with so much else of the portfolio they managed.
Indeed, where did all the money go? Any tangible assets can be seized and resold. How much was used under the table for $cientology? If the FBI can find some of that money in Clearwater, will Miscavige have to use $cieno funds to actually buy those buildings?
How do you get the Russian mafia to pay back assets in anything but potatoes? And Russian potatoes are going to be short supply on any export market for a long time. Viva La Ukraine!!!