Prosecutor claims GPB ‘was built on lies’

GPB executives used phony, back-dated documents as part of a scheme to defraud investors, federal prosecutor claims.

In a standing room only courtroom in downtown Brooklyn Wednesday morning, the fraud and conspiracy trial of two top executives of GPB Capital Holdings began with federal prosecutors claiming the private investment manager, which has not paid investors dividends since trouble surfaced in 2018, “was built on lies.”

Founded in 2013, GPB Capital saw incredible growth selling its high risk private placements through dozens of independent broker-dealers and five years later had raised $1.8 billion from wealthy clients looking for yield in a decade ago when interest rates were next to zero.

The firm had more than a half-dozen funds and invested mostly in car dealerships and trash and waste businesses, targeting a steady 8% annual return to investors.

Led by CEO and founder David Gentile and broker-dealer chief Jeffry Schneider, GPB first started ringing alarm bells six years ago, when it came to light that the company and its largest funds had failed to make timely required filings, including audited financial statements, with the Securities and Exchange Commission.

After U.S. District Court Judge Rachel Kovner told the standing spectators to find a seat, assistant U.S Attorney Nicholas Axelrod outlined the charges Gentile and Schneider face: securities fraud, wire fraud and conspiracy to enrich themselves.

Gentile wore a dark blue suit, striped tie and white shirt in court, with Schneider also sporting a dark suit and striped tie and a light blue shirt.

The atmosphere in court was convivial in the moments before the trial began with attorneys’ opening statements, with Gentile greeting well-wishers with hugs and slaps on the back. Schneider also appeared relaxed but was more reserved and less effusive than the former GPB chief executive.

Gentile and Schneider allegedly used phony, back-dated documents and paid distributions, or dividends, to investors using their own money, Axelrod said, rather than coming clean and admitting that the performance of GPB funds was not as steady as it appeared.

“They chose to hide it instead and paper over the shortfall,” Schneider said.

Gentile’s attorney Matthew Menchel said that investors had been told they could be paid with their own capital and the company hid no shortcomings. He also pointed to GPB’s incredible growth over five years. “Some mistakes were made, but not by David Gentile,” Menchel said.

“Jeff Schneider committed no crime, and Jeff Schneider is not guilty of the crimes charged,” said Glenn Colton, attorney for Schneider, who owned the defunct broker-dealer Ascendant Capital, the lead distributor to other broker-dealers of the high-risk private placements.

The trial is expected to last a month.

In February 2019, the FBI raided GPB offices in Manhattan. Two year later, the Justice Department, along with the SEC charged Gentile, Schneider and another senior executive, Jeffrey Lash with a number of fraud charges, including creating a Ponzi-like scheme and securities fraud, wire fraud and conspiracy. Lash pleaded guilty last year.

A receiver was supposed to take over GPB at some time this year, but that has been delayed, according to a report this winter in Wall Street Journal. The paper also reported that GPB, which primarily invested in auto dealerships and trash hauling businesses, had sold off $1.37 billion in assets.