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SEC Brings Enforcement Action Against GPB Capital Principals in $1.7B “Ponzi-Like Scheme”; Criminal Charges Also Brought

As a result of allegations that GPB Capital Holdings committed investment fraud of $1.7 billion, on February 4, the Securities and Exchange Commission (SEC) filed an enforcement action and separate criminal charges have also been filed in federal court. The SEC alleges that David Gentile, the founder, owner and Chief Executive Officer of GPB, of Manhasset, NY; Jeffry Schneider, the owner and CEO of Ascendant Capital LLC, of Austin, TX; and Jeffrey Lash, a former managing partner of GPB, of Naples, FL, engaged in a conspiracy as well as securities fraud and wire fraud. GPB Capital is a registered investment adviser. AAS is a registered broker-dealer; Ascendant Capital is its branch office.

An SEC investigation alleges a “Ponzi-like scheme” through which the defendants intended to defraud investors by misrepresenting the source of funds used to make monthly distribution payments and the amount of revenue generated by two of GPB’s investment funds, GPB Holdings, LP and GPB Automotive Portfolio, LP.

According to the SEC’s case, the defendants used deceptive marketing to misrepresent GPB Capital holdings. They promised monthly distributions paid to investors through money collected by investments and not from the invested capital received. What happened, according to the SEC, is that investor funds were directly used to pay many of the company’s distributions.

According to the complaint, “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.”

The complaint continues, “To existing and prospective investors in the limited partnership funds, GPB Capital projected an aura of success, touting that it consistently made an 8% annualized distribution payment to investors, as well as periodic ‘special distributions’ ranging from 0.5 to 3%.”

Gentile was also criminally charged. According to court documents, GPB Capital was founded in 2013 by Gentile, a NY-based investment advisor registered with the SEC. It was the general partner of multiple investment funds known collectively as GPB Funds, including automotive, waste management, and healthcare sectors, and was responsible for managing the funds through raising and investing capital in private equity investment portfolios. Primary founding, development, operation, and marketing were the work of Gentile and Schneider. Lash’s role for five years beginning in 2013 was to oversee investments in car dealerships, a significant part of GPB’s portfolio companies.

It’s alleged that the defendants engaged in fraudulent actions — material misrepresentations and omissions — toward investors in GPB Funds beginning in August 2015 and continued into December 2018. Among those actions included a representation to investors that monthly distribution payments from GPB Capital would come from operating funds, which implies that the GPB’s holdings were profitable enough to support a cash flow to investors without dipping into the money invested by customers. The SEC charges that investors’ money was used to pay for a big percentage of the distribution sent to investors. In addition, it’s alleged that Gentile and Schneider knew their portfolio wasn’t meeting the promised distributions and authorized using investor capital to cover the shortfalls. Lash helped Gentile and Schneider manipulate financial statements for two of the limited partnership funds.

It’s also alleged that investors were misled about the fees and compensation given to Gentile, Schneider, and Ascendant Capital, and Gentile and Schneider’s conflict of interest in making acquisitions and the fees they earned from those acquisitions. In addition, it’s alleged that required SEC paperwork hasn’t been filed.

If convinced, Gentile, Scheider, and Lash may be sentenced to up to 20 years in prison.

“Justice for investors of the company as well as the investors in general, whose faith in the free-market systems is crucial to the foundation of the securities industry,” said FBI Assistant Director-in-Charge William F. Sweeney, Jr., who announced the charges with Seth D. DuCharme, Acting United States Attorney for the Eastern District of New York.

The Wolper Law Firm represents investors nationwide in securities litigation and arbitration on a contingency fee basis. The Wolper Law Firm is currently handling myriad arbitration claims on behalf of aggrieved investors of GPB and has been pursuing these claims since 2019. Matt Wolper, the Managing Principal of the Wolper Law Firm, is a trial lawyer who has handled hundreds of securities cases during his career involving a wide range of products, strategies and securities. Prior to representing investors, he was a partner with a national law firm, where he represented some of the largest banks and brokerage firms in the world in securities matters. We can be reached at (800) 931-8452 or by email at mwolper@wolperlawfirm.com.

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