A federal judge unsealed an indictment on Thursday alleging that GPB Capital, a New York-based private equity firm with an office in downtown Clearwater, defrauded investors of $1.8 billion in a Ponzi-like scheme using new investors to pay earlier participants as the firm lied about its profits.
CEO David Gentile and associates Jeffery Lash and Jeffry Schneider were arrested on Thursday and charged with wire fraud, securities fraud and conspiracy, according to the Department of Justice.
The criminal charges, filed in New York, follow years of complaints against the company, including dozens of investor lawsuits. As of Thursday, seven state securities agencies also filed regulatory actions against GPB. The Securities and Exchange Commission lodged a 37-page complaint against Gentile, Lash and Schneider, alleging that nearly a quarter of the 17,000 victims of the “Ponzi-like scheme” were seniors.
“I have had clients who literally had to eat dog food because they lost all of their life savings on these investments,” said Kalju Nekvasil, a St. Petersburg investment fraud attorney who has filed dozens of lawsuits against broker dealers who sold GPB. “The irony is this investment was pitched to the very people who did not want risk.”
Gentile, 54, founded GPB in 2013 in New York, but the firm has an office in downtown’s One Clearwater Tower, two floors above City Hall. Gentile also owns a condo in Water’s Edge, two blocks from the Church of Scientology’s international spiritual headquarters, where he is a member.
The firm’s portfolio companies made investments in sectors focused on automotive retail, waste management and healthcare. GPB promised 8 percent returns to investors that would be covered by cashflow from the portfolio, and it raised $1.8 billion through its funds and downstream broker dealers, according to the indictment.
But as early as 2015, GPB was unable to fund distributions through its underperforming operations. The operators paid its clients using new investor money, but by December 2018 stopped monthly payments altogether.
If convicted, the defendants each face up to 20 years in prison, according to the Department of Justice.
GPB spokesperson Nancy Sterling said in a statement the firm “is extremely disappointed by these developments.”
“GPB denies these allegations and intends to vigorously defend itself in court where, for the first time, the firm will be able to present significant evidence in its favor,” Sterling said. “GBP remains confident that the firm acted in good faith during many years of managing funds for investors. GPB will continue to work toward increasing asset values and cash flows, while ensuring that the operating companies, their employees, and their commercial partners continue to deliver excellent value to our customers, and ultimately to our investors”
The alleged scheme involved targeting “accredited investors,” whose net worth or income qualified them to participate in private placement securities transactions that are exempt from federal and state registration, according to the North American Securities Administrators Association.
State complaints filed against GPB also alleged Gentile and his associates used the fund assets to enrich themselves, including paying for private jet travel and a Ferrari for Gentile, the Administrators Association said in a statement.