About 2,000 investors were scammed out of almost $1.8 billion by private equity firm GPB Capital, Ascendant Capital, their affiliates and several others who were named as defendants in an amended class action complaint filed Tuesday in U.S. District Court for the Western District of Texas in Austin.
Many of the victims in what the suit alleges was a Ponzi scheme were retirees concentrated in Arizona, Florida and Texas, according to law firm Peiffer Wolf Carr Kane & Conway, which filed the suit on behalf of plaintiffs Millicent Barasch of Florida and Loretta DeHay of Austin, Texas.
The updated lawsuit focuses on the “intertwined” Austin-based brokerage firm Ascendant Capital, which was “intimately involved at every key step” in the Ponzi scheme, according to the law firm. “The lines where GPB stopped and Ascendant began were blurred beyond recognition,” according to the law firm.
This is a “week of reckoning for the GPB Capital/Ascendant scheme,” Joseph Peiffer, managing partner of the law firm, said during a phone-based news conference Tuesday. “We have been sounding the alarm about GPB Capital for some time now,” he said, noting his law firm had, on Sept. 18, forecast an “avalanche” of retiree arbitration cases related to GPB.
Dozens of broker-dealers sold private placements sponsored by GPB Capital. In 2018, Massachusetts’ top securities regulator investigated 63 BDs in the state that offered those investments. GPB Capital said at the time that it had temporarily stopped bringing in new funds and suspended redemptions pending audits of some of its funds.
Former Securities and Exchange Commission enforcement staffer Michael Cohn was also indicted last year for allegedly stealing confidential information about a pending investigation to secure a job at GPB. He was charged by the U.S. Attorney’s Office for the Eastern District of New York with obstruction of justice, unauthorized computer access and unauthorized disclosure of confidential information. Cohn was also named as a defendant in the amended suit filed Tuesday.
According to the amended suit, Ascendant pulled down more than $800,000 in net commissions from GPB Capital victims in just one month.
Part of the scam included a GPB Automotive portfolio that the suit claimed was composed of auto dealerships that were a particular selling point for investors. The lawsuit alleged GPB Capital’s Prime Automotive Group was “run … into the ground” and was in jeopardy of losing its association to leading auto manufacturers.
FINRA Arb Cases
Meanwhile, the number of related FINRA arbitration cases seeking recovery for defrauded investors reached the nearly three-dozen mark, according to the law firm.
“Dozens of arbitration cases filed by Peiffer Wolf in the FINRA complaint-resolution forum focus on the misconduct of the brokers who were responsible for roping investors into the GPB scheme and then collecting fat commission checks for doing so,” according to the law firm.
“In addition to misleading sales tactics, the brokers were faulted for failing to do their due diligence and to ensure that the risky, illiquid and sophisticated investments they recommended were in any way suitable for what were often very inexperienced investors who put their nest eggs on the line,” the law firm said in announcing the amended class action complaint and increased FINRA arbitration disputes.
A new FINRA arbitration case was filed Tuesday by the law firm on behalf of DeHay, which named only SagePoint Financial. DeHay is seeking damages in this arbitration from SagePoint “regarding the unsuitable investment recommendations of its registered representative, Daniel Dillard,” it said.
In 2018, Dillard advised DeHay to invest $100,000 in the GPB Automotive Portfolio, according to the complaint. “Had Loretta been aware of how risky this investment was, or the failures of SagePoint to adequately conduct due diligence on GPB, she would never have invested in it,” the complaint added.
DeHay, 62, and her late husband “spent decades working to put aside enough money to retire in comfort,” she said during the Tuesday news conference. It was “disheartening” to find out that the $100,000 she and her husband had invested through broker Dillard turned out to be a “dead end,” she told reporters.
GPB, Ascendant and their lawyers, as well as SagePoint parent Advisor Group, did not immediately respond to requests for comment.
However, GPB issued a news release late Tuesday in which it disputed claims in the amended complaint and by the law firm about Prime Automotive being poorly run and at risk of losing automaker support, saying 14 major manufacturers are now affiliated with Prime Automotive. GPB didn’t address claims of fraud.
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