GPB Capital Sued by Another Business Partner Alleging Financial Misconduct

Originally published by P. Clarkson Collins Jr..

David Rosenberg, the CEO of Prime Automotive Group and a business partner of GPB Capital Holdings, is suing the private placement issuer in a Massachusetts Superior Court. According to Rosenberg’s complaint, GPB Capital has been operating a Ponzi-like scam that involved using investors’ funds to pay other investors and enhance its auto dealerships’ performances. Rosenberg is now the second former GPB Capital business partner to allege in public filings that GPB is essentially operating a Ponzi Scheme.

GPB Capital is a New York-based issuer of risky private placements that is invested primarily in auto dealerships and trash hauling companies. The firm has been under close scrutiny in the wake of allegations that it engaged in financial misconduct and as the value of its numerous GPB funds have dropped significantly from around $1.8 Billion down to about $1 Billion.

The U.S. Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), the Federal Bureau of Investigation (FBI), the New York City Business Integrity Commission, and the New Jersey Bureau of Securities are all investigating GPB Capital and its various funds. Additionally, Massachusetts Secretary of the Commonwealth William Galvin is investigating more than 60 brokerage firms whose brokers sold GPB private placements to investors. The “temporary” cessation of distributions to investors, since late last year, the firm’s failure over the last two years to provide financial statements, and its auditor’s resignation without completing its audit last year have only served to raise questions and increase concerns.

GPB Capital Holdings is a majority stakeholder in Prime Automotive Group, in which GPB invested $235 million in 2017. Rosenberg has stated that as part of the deal with GPB, the company was supposed to buy his remaining 23.7% ownership stake, to be paid in four installments totaling around $23.6 million. According to Rosenberg’s suit, however, the first payment of around $5.7 million was due on July 1, 2019, but GPB Capital has not yet made the required installment.

As alleged in his Superior Court complaint, Rosenberg says that after he was placed in charge of GPB’s car dealerships, he noticed certain issues occurring at the private placement firm, including that, allegedly:

• Investor funds were used to conceal shortfalls at certain dealerships.
• Inappropriate insider dealing was taking place.
• The value certain dealerships were being misrepresented.

The Boston Globe reports that Rosenberg notified GPB’s current auditors that he believed the private placement issuer has been engaging in financial misconduct. In his lawsuit, Rosenberg alleges that because there is no recently completed audit of GPB’s investments, lenders, auto manufacturers and other business partners are threatening to end business ties with Prime Automotive Group and GPB,  and there are dealerships defaulting on loan covenants. He also recently complained to the SEC that GPB has tried to force him out.

As discussed in a prior blog post, Rosenberg is not the only GPB auto executive to get into a legal dispute with the firm. Auto dealer and former GPB business partner Patrick Dibre is also suing GPB and accusing the firm of running a Ponzi scam and defrauding investors. (GPB is also suing Dibre and accusing him of financial misconduct.)

GPB Private Placement Fraud
Our GPB private placement lawyers are representing investors that suffered losses from backing these risky investments. There is growing concern that brokerage firms and their registered representatives may have sold GPB private placements to investors for whom they may not have been appropriate while downplaying or failing to disclose the risks. Private placement investments are not suitable for every investor. Contact Shepherd Smith Edwards and Kantas, LLP (SSEK Law Firm) today for your free, no obligation case consultation.

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