GPB Capital Funds Investor Recovery Options
If you were sold units in private funds issued by GPB Capital Holdings, LLC by your financial advisor, you have legal options and should contact Stoltmann Law Offices, P.C. for a no-obligation consultation with an experienced securities attorney. Stoltmann Law Offices, P.C. is currently representing investors who were solicited by their financial advisors to invest in various GPB Capital funds in FINRA Arbitration claims against the brokerage firms with whom these advisors were registered. Few investors realize this, but when a client signs up with a financial advisory firm to invest their money, buried deep in the contracts is a binding arbitration clause. This arbitration provision means that any dispute investors have against their advisors must be filed through FINRA Arbitration. Arbitration is typically quicker than court, is a private and confidential process, and discovery is more limited than in court, and there are no depositions.
Although the GPB Funds have not gone into bankruptcy and there have been no indications yet that any regulatory action is imminent, the news reports about GPB Capital’s financials indicate serious problems exist. If you invested in the GPB Capital funds based off of the recommendation of your financial advisor, you can pursue a claim in FINRA Arbitration to rescind the investment. Under most state securities acts, that means the brokerage, in exchange for tendering the GPB Fund units back to the firm, pays you back the cost of the investment, less any interest you received, plus statutory interest and reasonable attorney’s fees.Overview of the GPB Capital Holdings Funds
GPB Capital Holdings, LLC is a New York-based issuer of private placements offered under the “GPB” moniker. Over the last several years, GPB Capital has raised at least $1.3 billion dollars from mostly retail investors through eight separate private offerings. These offerings include:
- GPB Automotive Fund
- GPB Waste Management Fund
- GPB Holdings Fund I
- GPB Holdings Fund II
- GPB Holdings Fund III
- GPB New York Development, LP, and
- GPB Cold Storage, LP.
The GPB Capital Funds were organized as Delaware limited partnerships. Brokers and Brokerage Firms like FSC, Cetera Advisors, and NewBridge Securities, to name a few, earned whopping commissions for selling GPB Funds, in excess of 8% of total funds raised. What this means is, your broker made $8,000 for every $100,000 he sold. If that sounds high, that’s because it is. Traditional investments like stocks, bonds, and no-load mutual funds pay brokers between 0.5% and 1.5% of every dollar sold. Brokers justify these massive commissions by stating they need to be reimbursed for the extensive due diligence they do on an offering like GPB Capital before offering it for sale to their clients. The truth is, most brokerage firms merely check boxes on a list and pile a bunch of papers into a file and call it due diligence.
Limited Partnership interests in the GPB Funds are non-transferable and the GPB Funds do not offer redemptions. Essentially, once an investor’s money goes into the GPB Funds, it is gone and the investor is now the owner of limited partnership units that cannot be re-sold, that will not be bought back by GPB Capital Holdings, and for which there is no determined termination date. Specific to the term of this investment, GPB Automotive Fund states:
While we generally expect the Dealerships to operate for approximately two to five years, the Company’s term will expire on the earliest of: (i) a determination by GPB that the Company should be wound up, (ii) the date we divest our ownership interest in all of the Dealerships, (iii) the termination, bankruptcy, insolvency or dissolution of GPB, (iv) the sale of substantially all of our assets, (v) upon written consent of all of our Partners to terminate, (vi) an event of withdrawal of GPB, or (vii) a court decree requiring our winding up or dissolution.
Along with limited or no operating history, total illiquidity, and key-personnel risk, i.e., the success or failure of these partnerships are dependent on the abilities and performance of only a handful of people, the GPB Capital Funds, pursuant to their limited partnership agreements, were authorized to leverage-up to 50% of the total assets under management. This leverage ratio is substantial when compared to domestic closed-end investment companies (mutual funds) which are statutorily limited to only leveraging-up 33% for the most speculative mutual funds.
Unfortunately for investors who are locked into GPB Capital Funds, the Funds have recently spent a substantial amount of time making headlines. Beginning in August 2018, GPB Capital stated it was taking a break from raising new investor money to focus on the financial statements for its two largest offerings, one of which is the GPB Automotive Fund. In the statement, GPB Capital stated it was necessary to restate and overhaul the financial statements for 2015 and 2016 as part of an ongoing accounting review. In September 2018, Massachusetts Secretary of the Commonwealth of Massachusetts, William Galvin, announced a sweeping investigation into 63 broker/dealers that sold various GPB Capital offerings.
Matters only got worse for GPB Capital when, in November 2018, according to published reports, it informed its broker/dealer network that its accountant and auditor, Crowe, LLP, “notified GPB Capital that it elected to resign as auditor for the partnership…due to perceived risks that Crowe determined fell outside of their internal risk tolerance parameters.” According to the same article, GPB Capital was more than a year late in filing its mandatory financial statements with the SEC. GPB Capital also decided to halt investor distributions.
The slow bleed of bad news for GPB Capital accelerated in December 2018 when it was reported that both the SEC and FINRA launched investigations into brokerage firms that sold GPB Capital Funds. These investigations were all related to the one launched in September 2018 by Massachusetts. Then, during the last week of February 2019, the FBI and the New York City Business Integrity Commission made unannounced visits to GPB Capital headquarters in New York.
If you invested in any of the GPB Capital Funds, you have legal rights! Call Stoltmann Law Offices, P.C. at 312-332-4200 for a no-obligation consultation with an experienced securities law attorney. Stoltmann Law Offices is a Chicago-based law firm offering representation to investors nationwide on a contingency fee basis, which means we do not get paid until you do!