Articles Posted in Private Placements

Already under scrutiny for suspending its sale of private placements, along with redemptions to investors, GPB Capital Holdings now has to explain why its accountant, Crowe LLP, has resigned as the alternative asset management firm’s auditor. GPB Capital had announced a few months ago that it was undergoing an accounting overhaul and that this was why it had failed to submit financial statements for its two biggest funds – the GPB Holdings II and the GPB Automotive Portfolio – to the U.S. Securities and Exchange Commission (SEC) earlier this year. These private placements primarily invest in waste management businesses and car dealerships.

According to GPB Capital CEO David Gentile, Crowe has resigned because of “perceived risks” that the accounting firm felt were outside its “internal risk tolerance parameters.” GPB Capital has since retained EisnerAmper, LLP as its replacement auditor.

Such a significant change at such an important time period should raise significant concerns to those who have invested in GPB Capital Holdings private placement deals. GPB Capital Holdings has at least nine different funds including the two mentioned above (GPB Automotive Portfolio and GPB Holdings II) as well as GPB Holdings III, GPB Cold Storage, GPB NY Development and GPB Waste Management.

With already $1.8B in investor funds, GPB Capital Holdings is now placing a pause on raising more funds while it concentrates on putting in order the accounting and financial statements of two of its biggest funds, the GPB Automotive Portfolio and the GPB Holdings II. Both, collectively have raised nearly $1.3B in investor money. To date, the two funds have paid brokers $100.1M in sales commissions.

The halt comes after GPB Capital, which is a top seller of risky private placements and concentrates on purchasing auto dealerships, missed its April deadline to file financial statements for the two funds with the US Securities and Exchange Commission. According to GPB Capital CEO David Gentile, in a letter that InvestmentNews was able to get a copy of, the delay in filing is a result of having to deal with accounting standards that mandate the two funds generate yearly audited financial statements that must be in compliance with SEC regulations, as well as with the Public Company Accounting Oversight Board’s standards.

Gentile, who headed up his own accounting and advisory firm before launching GPB in 2013, said that “best practices and efficient reporting are a top priority”— hence the temporary halt in accepting money from new investors. Meantime, fund redemptions have been suspended and reportedly will resume after the financial statements and public filings are submitted.

Two Investment Advisers Accused of $20M Investor Scam
The US Securities and Exchange Commission has filed civil charges against investment advisors Ronald A. Fossum and Alonzo Cahoon. They are accused defrauding retail investors in an unregistered securities scam. According to the regulator, from about 3/2011 to 6/2016, Fossum raised over $20M from more than 100 investors via securities offerings in investment funds under his control or ownership, including the:

  • Accelerated Asset Group, LLC
  • Turnkey Investment Fund, LLC
  • Smart Money Secured Income Fund, LLC

Fossum is accused of misappropriated hundreds of thousands of dollars of investors’ money to pay his own expenses, including living in a home owned by one of the fund’s free of rent. He also allegedly used investor funds to pay for international travel and federal taxes.

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The Financial Industry Regulatory Authority has filed fraud charges against Sandlapper Securities. According to the self-regulatory organization, the small brokerage firm created and sold private placements in saltwater disposal wells in Texas while charging undisclosed markups of up to 270% that eventually totaled over $8M on numerous deals.

Also accused of fraud are Sandlapper CEO Trevor Gordon, firm executive Jack Bixler, and two ex-brokers. FINRA contends that in 2011, the four men set up Tiburon Saltwater Reclamation Fund to invest in these wells. They also established a development company to handle the investments in the wells. However, alleges the SRO, between 12/12 and 7/13, Bixler and Gordon utilized the development company to intervene between the fund and the saltwater disposal well deals and they charged markups ranging from 161-270%. Not only were these markups excessive but also they went undisclosed. This occurred even though the fund could have directly bought interest in the wells.

Also, claims FINRA, beginning in 2013, Gordon began using the development company to obtain ill-gotten profits from investors who bought interest in the saltwater disposal wells. The company bought the interests and then resold them to investors, again at high, undisclosed markups of 67% to 376%.

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Oil Well Company and Founders Accused In $2.4M Offering Fraud
The SEC has filed offering fraud-related charges against Kentucky-Tennessee 50 Wells/400 BBLPD Block, Limited Partnership, its founders, and three members of its sales team over a $2.4M offering fraud. According to the US Securities and Exchange Commission’s complaint, the oil well company fraudulently offered and sold unregistered securities to investors through a boiler room operation. They raised about $2.4M from 41 investors.

Carol J. Wayland and her son John C. Mueller founded K-T 50 Wells. They are accused of misappropriating investor funds for purposes not disclosed in the private placement memorandum, including taking more than $871K for their own expenses and making Ponzi payments to some investors.

Real Estate Agent Allegedly Sold Unregistered Securities as Part of Brother’s Ponzi Scam
Cheryl L. Jones is accused of defrauding investors by helping her brother, Mark Jones, recruit investors for his Ponzi scam. The Commission contends that Jones brought in associates and friends to buy unregistered promissory notes and personal guarantees that her brother was involved in.

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A Financial Industry Regulatory Authority Panel is ordering Mid Atlantic Capital Corp. to pay David Wellman and Beverly Bien $922K. The married couple sued the independent brokerage firm for losses they sustained after they invested in Sonoma Ridge Partners (a real estate private placement), KBS-sponsored nontraded REITs, silver and gold exchange-traded funds  (ETFs) like iShares Silver and Market VectorsGold Minors, and Contago Oil and Gas securities. They alleged that Mid Atlantic Capital Corp. was liable for negligent misrepresentation, negligence, omissions, breach of fiduciary duty, breach of contract, negligent supervision, restitution, common law fraud, and violation of Colorado’s Securities Act.

The couple was close to retirement age when they made the investments several years ago prior to the 2008 economic collapse. According to the couple’s legal team, among the issues that they believe were problematic is that Mid Atlantic’s two brokers that managed Sonoma Ridge Partners were not the same brokers who marketed and sold the private placement to investors. The claimants believe that this presented a conflict of interest.

Previously called the Jadda Secured Senior Mortgage Fund,  Sonoma Ridge Partners was promoted as an alternative to low-yielding CD’s, as well as to the stock market with its volatility. It was supposed to render 9-11% annual yields. Also, although Bien bought most of the illiquid real estate investments, she lacked the required net worth necessary to qualify as an accredited investor under private placement industry rules.

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The Financial Industry Regulatory Authority has expelled the real estate firm formerly called DT Securities and its owner/CEO Markel Newton. According to the regulator, DT Securities and Newton engaged in negligent misrepresentations involving private placements. Markel is also barred for alleged violations involving two of the firm’s offerings to purchase real estate in Georgia and Florida, as well as a third one involving alcoholic treatment facilities in California.

According to FINRA, in the private placement offerings Fresh Start, DT Atlanta, and DT Florida, Markel and DT Securities should have disclosed that the California Department of Real Estate had submitted a complaint against him in 2010.

The complaint against Markel and DT Ventures Real Estate Investments accused them of performing certain activities without the required real estate license, as well as making misrepresentations about deposits made for purchase to sellers. In 2011, Markel consented to a 30-day suspension.

In addition to accusing Markel of not alerting the state, FINRA also accused Markel of improperly releasing escrow proceeds to purchase properties prior to satisfying funding-raising goals that were delineated in two of the private offerings. The settlement document said that although DT Florida had originally aimed to raise at least $3M by the end of November in 2009, that closing date was extended to 1/29/10. The funds were to go back to investors if that figure wasn’t achieved. The private placement offering put into effect by DT Atlanta in 2011 came with the goal to raise a minimum of $1.7M—a figure that was later lowered to $400K. That lower figure was reportedly never properly fulfilled.

 

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In a voice vote on Tuesday, the U.S. Securities and Exchange Commission’s Advisory Committee on Small and Emerging Companies is making a recommendation to broaden the criteria for which investors are eligible to purchase unregistered securities. Currently, an accredited investor that can invest in these securities must have made at least $200K/year for the last two years or have a net worth of at least $1M (the value of one’s main residence not included). Under the recommended broader requirements, investors who have a chartered financial analyst or similar credential, or who have passed the series 82, 65, or 7 securities license exams, would also qualify. The advisory committee wants to create a bigger pool of accredited investor applicants to help small companies raise more funds.

Although the SEC committee’s recommendation isn’t binding, SEC Chairwoman Mary Jo White said that it is important to modify the existing accredited investor definition. The Dodd-Frank Act requires the Commission i to periodically look at the criteria defining an accredited investor.

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A Financial Industry Regulatory Authority Arbitration Panel is ordering AOG Wealth Management chief executive and president, Frederick Baerenz, to pay Roger and Barbara Bond $331K in compensatory damages over private placement investments.

The panel found Baerenz liable for unsuitable trading because he allegedly misled the Bonds about the risks involved in the direct private placements they invested in from ’06 to ’09. At the time, Baerenz was affiliated with Pacific West Securities.

The Bonds invested about $941K in private placements. Their legal team contends that these were not suitable investments for them.

Private Placements

Private placements are offerings of a company’s securities that are not registered with the SEC. They are not offered to the general public.

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Ex-Medical Capital Holdings COO Gets 10 Years in Prison
Joseph J. Lampariello, the ex-president and COO of Medical Capital Holdings, has been sentenced to 10 years and one month in prison for his involvement in a private placement fraud that became the Ponzi scam responsible for the shutdown of dozens of brokerage firms. Lampariello must also pay investors almost $40M in restitution.

Medical Capital Holdings, a medical receivables financing company, supervised funds that were supposed to buy account receivables from medical providers that were credited, provide money for general operating costs, and make loans that were secure. Instead, for almost a year, Lampariello misappropriated the money investors had given for MedCap deals, using the funds to pay earlier investors and himself.

Over 700 investors were bilked of close to $49M. Meantime, the independent brokerage firms that sold MedCap notes also suffered. They got in trouble over allegations that they did not conduct the proper due diligence on Medical Capital and other private placements that ended up being scams. A lot of broker-dealers had to close up shop because of the securities fraud cases brought by investors wanting their money back from the Medical Capital fraud.

Momentum Investment Partners Faces SEC Fraud Charges
Investment advisory firm Momentum Investment Partners , doing business as Avatar Investment Management, and principal Ronald Fernandes are charged with fraud. The U.S. Securities and Exchange Commission claims that the firm and Fernandes did not disclose to clients that they were charging them additional fees. Avatar is no longer in operation.

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