New York State Insider: New York State Attorney General James Sues Private Equity Fund Manager for Ponzi-Like Investment Scheme that Defrauded Investors Out of More Than $700 Million.

 

FOR IMMEDIATE RELEASE: February 4, 2021 Attorney General James Sues Private Equity Fund Manager for Ponzi-Like Investment Scheme that Defrauded Investors Out of More Than $700 Million. Defendants Diverted Investor Monies to Pay Off Other Investors,  Subsidize Luxury Travel and Purchase Ferrari. New York Investors Alone Invested More Than $150 Million. NEW YORK – New York Attorney General Letitia James today filed a lawsuit against a New York private equity fund manager and five co-defendants for defrauding investors across the country out of more than $700 million through a Ponzi-like scheme that offered to pay investors generous monthly distributions they could never deliver. The suit — filed against New York City based investment advisor GPB Capital Holdings, LLC; two related entities involved in marketing the funds, Ascendant Capital and Ascendant Alternative Strategies; and three individuals, David Gentile, Jeffry Schneider, and Jeffrey Lash — charges the defendants with devising and executing a fraudulent scheme to enrich themselves at the expense of investors without ever delivering a profit to those who invested in the funds. Thousands of investors across the nation invested more than $1.8 billion in GPB funds, including more than 1,400 New Yorkers who invested more than $150 million, on promises of profits on private equity investments in portfolio companies that included automotive dealerships and waste management companies. “Investors put in more than $1.8 billion into GPB funds but were left without a single cent of profit,” said Attorney General James. “GPB and its operators fleeced New Yorkers and investors around the country while subsidizing their own lavish lifestyles, which is why we are filing this lawsuit and fighting to hold these bad actors accountable. We won’t let Wall Street fat cats get away with breaking the rules, as they pilfer New Yorker’s wallets in the meantime.” Today’s lawsuit — filed in New York County Supreme Court — alleges that the defendants were aware of the shortfalls in portfolio company cash flows, but nevertheless fraudulently assured investors that distributions being paid were “fully covered” by the cash flow from portfolio company operations. In fact, GPB Capital offered investors an eight percent annual return on their investments. In reality, however, a Ponzi-like scheme was utilized where the distributions to existing investors were paid, at least in part, by monies received by new investors. Attorney General James also alleges in the complaint, that, in furtherance of this scheme, GPB Capital and the other defendants created back-dated performance guarantees and falsified financial statements to generate fictitious income — all in an effort to cover up their shortfalls. Further, the complaint charges the defendants with failing to disclose numerous conflicted transactions involving related parties, as well as misappropriations of fund assets, all of which served to benefit the defendants. Investor funds were spent to subsidize private planes and luxury travel for the three defendants, direct payments totaling millions of dollars into personal bank accounts, and payments to family members. Defendant Gentile even purchased a Ferrari sports car with investor funds. Attorney General James specifically charges GPB Capital and the five additional defendants with violating the Martin Act and New York Executive Law § 63(12), as well as breaching fiduciary duty and aiding and abetting a breach of fiduciary duty laws. Attorney General James seeks restitution for investors of more than $700 million defrauded, as well as disgorgement. Additionally, Attorney General James seeks to stop the defendants from further violations of New York law, a permanent injunction of defendants Schneider and Gentile from selling or offering for sale securities within New York state, and other equitable relief to redress the defendants’ violations of New York law, as well as costs and fees incurred by New York state. This matter was investigated in parallel with multiple state securities regulators, the U.S. Securities and Exchange Commission (SEC) and the U.S. Attorney’s Office for the Eastern District of New York (EDNY). Joining New York in filing separate but simultaneous actions against GPB Capital and other defendants are the states of Alabama, Georgia, Illinois, Missouri, New Jersey, and South Carolina, as well as the SEC. The EDNY unsealed indictments against Gentile, Schneider, and Lash this morning on related charges. The Office of the New York Attorney General wishes to thank the states for their significant contributions to the investigation, as well as the SEC and the EDNY for their cooperation in this matter. The case is being handled by Assistant Attorneys General Jesse Devine, Rita McDonough, Amita Singh, and Melissa Gable of the Investor Protection Bureau, and Senior Enforcement Counsel for Economic Justice Kevin Wallace, with the support of Legal Assistants Renata Bodner, Eddie Aguilar, and Charmaine Blake. The Investor Protection Bureau is led by Bureau Chief Peter Pope and is a part of the Division for Economic Justice, which is overseen by Chief Deputy Attorney General Chris D’Angelo and First Deputy Attorney General Jennifer Levy.