As reported by Bruce Kelly of Investment News, the opening day of David Gentile and Jeffry Schneider’s criminal trial in Brooklyn was largely what we expected from reading months of pretrial in limine motions.

Gentile and Schneider’s attorneys opened by arguing that no crimes had been committed as, for example, investors were told in the fine print that they could be paid distributions from their own money or that of other investors.

In other words, the fine print allowed GPB Capital to be a legal Ponzi scheme. Or at least this is what Gentile and Schneider’s attorneys are shamelessly arguing in open court.

The “this was all legal” language can be seen in a private due diligence document we discovered in one of GPB Capital’s Broker-Dealers websites. There was supposed to be password protection and there was not. Therefore, we downloaded the publicly-available document. In the excerpt below “LPs” refers to Limited Partners i.e. the investors:

This clause created a likely illegal contract in which:

1. GPB Capital investors were not told that 12% off their money was immediately lost upon investment based upon undisclosed and hidden fees paid to Gentile, Schneider, and GPB’s Broker-Dealers.

2. Gentile and Schneider attempt to make a Ponzi-like scheme is legal because it is part of a contract.

3. What the co-defendants are arguing is that they were allowed to take investor money; pay themselves big fees; and then give investors back some small percent of their investment and call it a distribution. Technically speaking, this would be a deceptive return of capital and not a distribution. We say “deceptive” because investors were not told they were being paid “distributions” from investor money rather than from profits generated by the GPB Portfolio in which they invested. 

4. After taking 12% off the top in fees and giving investors back their own money and calling them distributions, the amount remaining to invest was significantly reduced. The inherent fraud here is palpable. Schneider told Gentile in an email that they had to “man up” and cross the line and pay investors from investor money. We see this in the US Federal criminal indictment filed against Gentile and Schneider:

In our view, there was an inherent intention to mislead and defraud investors in what were bad faith contracts of adhesion. This bad faith was abundantly demonstrated when the Delaware Chancery Court ruled that GPB Capital investors had to pay the civil and criminal defense fees of Gentile and Schneider per the contracts.

It will be impossible, we think, to convince a jury that such sleazy behavior and dirty contracts in which 17,000 investors lost $1.7 billion acceptable.

And there is yet more for the jurors to hear including the FBI raids, wire fraud, wiretapped conversations, and the testimony three former Sea Org members who worked for David Gentile.

Reference: The original US Federal criminal indictment against David Gentile, Jeffry Schneider, and Jeff Lash, the latter of whom plead guilty in a plea deal in May 2023.

Jeff Lash co-founded GPB Capital with Gentile in 2013.

As part of the allocution on his guilty plea, Lash admitted to committing one act of wire fraud with David Gentile. Lash is expected to testify against Gentile at trial on the wire fraud charge and other significant matters during trial.