National Financial Services, which is Fidelity Investments’ clearing and custody unit, has given its brokerage firm clients 90 days to get rid of all GPB Capital Holdings private placements from its platform. The announcement means that investors and their financial advisers will have to move their GPB fund assets to a different custodial firm. Considering that there are a lot of broker-dealers who use National Financial as their primary custodial firm and to clear the investments of clients, the decision is likely to impact a lot of parties.
A main reason for the edict is that, reportedly, neither Fidelity nor National Financial are clear about the actual value of the GPB private placements. Third-party vendors typically provide this information. According to InvestmentNews, Fidelity spokesperson Nicole Abbott said that at the moment GPB is not meeting her company’s policy regarding alternative investments.
In Trouble with Investors and Regulators
The news is another blow to GPB, which has been in a lot of trouble with regulators, investors, and even a former partner. With a portfolio holding over 160 companies and investing mostly in trash hauling companies and car dealerships, its private placement funds have plunged in value significantly. The GPB funds, which were once together valued at $1.8B, are now worth around $1.1B.
Investors, meantime, have lost around $600M in the process while, reported InvestmentNews, brokers and their firms reportedly earned around $167M in commissions from the transactions. With private placements, it is common practice for a broker to make a 7% commission from a sale, with another 2% fee going to the broker-dealer.
Brokerage Firms Under Scrutiny for GPB Sales
Over 60 broker-dealers, including Purshe Kaplan Sterling, Woodbury Financial Services, SagePoint Financial, and Royal Alliance Associates have sold GPB funds. Questions are now being raised about what any of these firms knew about the private placements even as they were selling them to investors.
For example, late last year, ex-Purshe Kaplan Sterling Investments compliance officer Toni Caiazzo Neff filed a lawsuit accusing the firm of firing her after she brought up concerns about how the broker-dealer went about approving alternative investments such as GPB Holdings.
The US Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) are reportedly investigating GPB, as is the Federal Bureau of Investigation, which raided the GPB office in New York earlier this year. In September, Massachusetts Secretary of the Commonwealth William Galvin announced that he was investigating 63 brokerage firms that sold GPB-controlled partnerships.
Also not happy with GPB is Patrick Dibre, one of its former operating partners. They are suing each other, with Dibre last year accusing GPB Capital Holdings controllers Jeffrey Schneider and David Gentile of using funds to support their lavish lifestyle, including $550K for a plane in August 2017. Gentile also allegedly paid his dad’s accounting firm $100K a month for services that were either never rendered or overbilled.
Dibre contends that GPB sued him to conceal the fact that the company was being run like a Ponzi scam and sustaining losses.
GPB Investor Fraud Claims
If you or someone you know suffered losses from investing in GPB Capital private placements, you may have grounds for pursuing a claim for broker fraud against the advisor or broker-dealer that sold you the investments. Our GPB private placement fraud lawyers have been working with clients nationwide in filing their claims for losses and damages. Contact Shepherd Smith Edwards and Kantas LLP (SSEK Law Firm) today.