The Mal Practice Connection

The Mal Practice Connection

Bridging Integrity with Accountability

The Mal Practice Connection is a platform dedicated to promoting integrity and accountability in legal representation. Through education, advocacy, and fostering a culture of transparency, we strive to mitigate the risks of malpractice and uphold the highest standards of professionalism within the legal profession.

The SEC Recommends Receivership For GPB Capital Holdings

The SEC and a court-appointed monitor have recommended receivership for Haselkorn & Thibaut – GPB Capital experts to protect the nearly $1B invested by 17,000 investors in the alternative investment firm that was accused of running a $1.7 billion Ponzi-like scheme. The firm sponsored a series of Regulation D private placement investments that were sold by dozens of broker-dealers.

Investors were promised distributions (think dividends) from the operations of business interests that GPB owned in limited partnerships. Those businesses included auto dealerships, garbage collection companies, and health care companies. The problem was that GPB was not generating sufficient cash flow to fund the promised distributions and instead used investor funds to pay for things like marketing and staff salaries.

According to reports, GPB ran out of money in August 2015 and was unable to pay its investors. The company then stopped filing its mandatory financial statements with the SEC and halted investor distributions. Investors also learned that the GPB’s accountant and auditor, Crowe LLP, had resigned due to perceived risks that they determined fell outside their internal risk tolerance parameters.

Despite all these issues, many of the brokers and financial advisors who sold the GPB investments continued to downplay the seriousness of the issues, and reassured their current and former client investors that a positive resolution was near. Even now, 6 months after the SEC appointed a Receiver to assess the situation, those advisors and their firms continue (and have) to downplay the current state of affairs, and assure that current or former GPB Capital Investor clients will eventually see future potential positive outcomes.

A few broker-dealers that sold the GPB offerings have already been penalized by Finra. But the SEC and receiver Joseph Gardemal are now focusing on individual brokers and financial advisors who may have a duty to their clients to perform proper diligence on the products they sell, and to make sure that such high-risk investments are suitable for the investors that they are sold to.

One of the problems with investing in GPB Capital was that the private placements were only sold to investors who met the minimum investment requirements – a 67-year-old widow, for instance, who had at least $300,000 in assets would have been eligible to invest in the automotive portfolio of the GPB Capital investments. Yet, the alleged fraudsters sold GPB to many retail investors who did not meet those minimum requirements.

The brokerage industry continues to come up short when it comes to selling these types of high-risk investments. Until the broker-dealers and financial advisors stop chasing outrageously high commissions, and they begin to perform their due diligence on these high-risk investments before they are sold to their clients, investors will continue to be defrauded.

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top