Heads of GPB Capital, Related Firm Indicted in Alleged Private Equity Fraud

Three men affiliated with New York-based alternative asset management firm GPB Capital Holdings, including its founder and CEO, have been charged with securities fraud, wire fraud, and conspiracy as part of a scheme to defraud investors.

According to an indictment unsealed in the Eastern District of New York, David Gentile, the founder and CEO of GPB; Jeffrey Lash, a former managing partner of GPB; and Jeffry Schneider, the owner and CEO of Ascendant Capital, allegedly misrepresented the source of funds used to make monthly distribution payments to investors, as well as the amount of revenue generated by two of GPB’s investment funds. If convicted, each of the three men faces up to 20 years in prison.

GPB, which Gentile founded in 2013, served as the general partner of several investment funds, including GPB Holdings, GPB Holdings II, GPB Automotive Portfolio, GPB Waste Management, and GPB Cold Storage, and raised and invested capital in a portfolio of private equity investments.

Gentile and Schneider worked together running GPB’s funds, according to the indictment, which noted that GPB funds maintained such a close operational relationship with Ascendant that executives at each firm considered the two firms to function as one company. And Lash was responsible for overseeing the GPB funds’ investments in car dealerships, which made up a significant portion of GPB’s portfolio companies.

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The indictment said the alleged material misrepresentations and omissions made by the men induced people to invest their capital in certain funds based on the understanding that the funds would continue to use investor money to acquire mature, profitable companies that were already generating enough cash flow to pay the investors’ monthly distributions.

The court documents said investors were led to believe that they would receive monthly liquidity in the form of distribution payments, and that the payments would not diminish the value of their invested capital, which would remain invested in the portfolio companies. In reality, according to the indictment, the portfolio companies frequently underperformed expectations, the monthly distribution payments largely came from investor capital, and the monthly distribution payments were suspended in December 2018.

“The vast majority of investors in the GPB funds have been unable to obtain any liquidity from their investments since that time,” according to the indictment.

The GPB funds mainly raised capital through Ascendant, whose employees pitched registered brokers and registered investment advisers (RIAs) to get their individual investor clients to invest in GPB funds. Ascendant also organized due diligence seminars where brokers and investment advisers could get information about the GPB funds and meet with Gentile and other GPB funds representatives. GPB funds were touted as a “rare opportunity” to invest in private equity, which is typically only available to institutional investors, according to the indictment.

“As alleged, the defendants misrepresented the holdings of GPB Capital through deceptive marketing practices, luring investors with promises of monthly distributions that would be covered by funds from the investments and not drawn from underlying invested capital,” William Sweeney Jr., assistant director-in-charge of the FBI’s New York field office, said in a statement. “In truth, a significant portion of GPB’s distributions were paid directly from investor funds.”

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Tags: Ascendant Capital, conspiracy, David Gentile, Eastern District of New York, GPB Capital Holdings, Jeffrey Lash, Jeffry Schneider, Securities Fraud, Wire Fraud

The funded ratio of the 100 largest corporate defined benefit (DB) pension plans improved to 89.8% at the end of January from 88.1% at the end of December as their aggregate deficit fell below $200 billion for the first time in more than a year, according to consulting firm Milliman.

With the help of a 16 basis point (bp) increase in the monthly discount rate to 2.62% from 2.46%, the plans’ funding improved by $39 billion in January as their aggregate deficit declined to $196 billion from $235 billion due to liability gains incurred during the month.

“Over the past four months, we’ve seen the funded ratio for these plans climb steadily upward,” Zorast Wadia, author of the Milliman 100 PFI, said in a statement. “January’s discount rate bump was good news for corporate pensions, especially coming on the heels of last quarter’s $70 billion funded status improvement.”

However, a 0.21% investment loss during the month caused the aggregate market value of the plans’ assets to decline by $7 billion to $1.738 trillion as of the end of January. Otherwise, investment returns for the plans have been robust over the previous 12 months to January, returning 10.26% to help improve their funded status by $61 billion.

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However, the strong returns were in a large part offset by the general downward trend in discount rates last year. If not for the falling rates, the funded ratio would have increased significantly more than the 3.4 percentage point bump during the previous 12 months from 86.4% at the end of February 2020.

The pension liabilities, or projected benefit obligation (PBO), fell to $1.935 trillion during the month, which was also attributed to the 16 bp increase in the monthly discount for January.

Milliman said that if the companies in its index were to earn a 6.5% median asset return, and if the current discount rate of 2.62% held steady through this year and next, the funded ratio of the plans would increase to 93.6% by the end of 2021 and 97.9% by the end of 2022. The forecast includes aggregate annual contributions of $50 billion in 2021 and 2022.

Under an optimistic forecast with interest rates rising to 3.17% by the end of 2021 and 3.77% by the end of 2022, with 10.5% annual asset gains, the forecasted funded ratio would surge to 104% by the end of 2021 and 123% by the end of 2022. However, under a pessimistic forecast with interest rates falling to 2.07% by the end of 2021 and 1.47% by the end of 2022, coupled with annual asset gains of only 2.5%, the expected funded ratio would fall to 84% by the end of 2021 and 77% by the end of 2022.