Broker-dealers who agreed to sell north of $1 billion of funds promoted by New York private funds adviser GPB Capital Holdings missed or ignored warning signs that the business wasn’t what it claimed to be, records obtained by sister publication Regulatory Compliance Watch show.
GPB raised the sum over five years and, at its peak, more than five dozen broker-dealers signed on to sell the adviser’s funds. The B-Ds earned commissions of between 8 percent and nearly 12 percent, SEC records show.
But now GPB is publicly reeling – the subject of numerous lawsuits, the focus of multiple investigations, its former compliance officer under federal indictment – and a chorus of critics is asking whether those same broker-dealers should’ve known that GPB could cause trouble from the beginning (RCW, Nov. 27, 2019).
Records obtained by Regulatory Compliance Watch show that some of GPB’s earliest transactions put millions into the pockets of its owners – and the family of an exiled Russian oligarch.
In a series of deals made between May 2013, just after it opened for business, and late winter of 2014, a company owned by a GPB fund acquired full or majority ownership of DJD Holdings and its sister company. The deals totaled nearly $5.2 million, records show.
Both sides of the ball
At the time, that company, variously called GPB LLC and GPB Holdings Automotive LLC in the documents, was owned by auto dealer Jeffrey Lash and GPB Holdings LP, a fund managed by New York financier David Gentile. Gentile is also the sole owner of parent company GPB Capital. And DJD’s owners included – either directly or through parent companies – Gentile and Lash, records show.
DJD’s ownership group also included sisters Rina and Diana Chernaya, daughters of Russian aluminum magnate Michael Cherney, and a company controlled by Cherney called McAnna.
These details were published in two different October 2014 letters written by Lash’s attorney and published as exhibits to a lawsuit Lash filed in 2015 against Volkswagen to protect his upstate New York dealerships.
The letters show that from its earliest days, GPB’s insiders were already profiting off the adviser’s dealings, says Jason Kane, an attorney with Peiffer Wolf Carr & Kane. The legal firm has filed a class-action lawsuit in federal court in Texas alleging that GPB was nothing but an elaborate Ponzi scheme.
‘Not suitable for anybody’
“It’s a major conflict of interest,” Kane says. “If you are a 65-year-old retiree or a 30-year-old millionaire the fact that the first asset acquired by GPB was from Gentile and his friends is a flashing red light. GPB wasn’t suitable for anybody.”
Gentile has repeatedly declined Regulatory Compliance Watch‘s requests for an interview.
The attorney’s letters were a clear warning of things to come, Kane says. He and his colleagues see the letters as proof of self-dealing.
In fact, Regulatory Compliance Watch has learned of at least one broker-dealer that discovered the letters from Lash’s attorney and used them to reject GPB’s business in 2016. The following year, however, the broker-dealer circumvented its own due diligence committee to sign on to sell GPB.
The presence of Cherney, though, Kane says, makes things even worse. Cherney lives in exile in Israel. In 2009, a Spanish judge issued a warrant for him on money laundering charges. He has been held in civil contempt in New York and – a rarity for a civil case – been promised with jail time if he ever sets foot there (see boxouts below).
“Again, this is a major red flag about the very foundation about what GPB was and is,” Kane says.
Cherney has dismissed the accusations against him, claiming they are fabrications of his old enemies in Russia. But in 2014, a New York judge held – and the Empire State’s Supreme Court would later uphold – that Cherney was using his daughters and several companies, including McAnna, as fronts to hide money from his litigious rivals.
Gentile and the Cherneys
It’s not clear how far back the GPB-Cherney relationship goes. Federal records show that Gentile and other GPB principals were partners with the Chernaya sisters in a firm called RDRD II Holdings, which in turn served as a “promoter” to a now-aborted Irish gambling company, beginning in 2012.
Efforts to reach Cherney and his daughters have been unsuccessful.
Tab Rosenfeld, who is representing both Rina Chernaya and GPB today, declined to discuss GPB’s relationship with the Cherney family.
“I’m in the middle of litigation defending clients,” he said. “We prefer that the litigation gets addressed in court, not in the media.”
‘Rough necks’: an oligarch’s story
Michael Cherney, 67, was born to Jewish parents in Tashkent, the largest city in Uzbekistan. He was a boxer and basketball player whose first business had him running street lotteries with ping-pong balls in metal drums.
“Tashkent was a pretty wild place when I was a kid,” he told The Guardian for a profile in 2007. “It attracted rough necks from all over the Soviet Union, looking for jobs in construction after an earthquake. It was all about drinking and fighting.”
He made his early career on the Soviet Union’s black market, selling everything from watermelons to shoes made from factory scrap. But as the Soviet Union collapsed, he leapt into the void and made his fortune.
Cherney moved to Israel – he says under threats from Russia’s emerging gangster state – in 1994. He remains there to this day.
In the late 1990s, Russian media began publishing lurid reports of Cherney’s alleged criminality. He says it was a campaign by his rivals. “I have no criminal record anywhere, but suddenly articles were written claiming I was guilty of drug trafficking, kidnapping, money laundering, murder, you name it,” he told The Guardian.
Whatever the merits of the accusations against him, a Spanish judge found some of them credible enough to issue a warrant for his arrest, for money laundering, in 2009. Interpol followed with a warrant of its own the following year.
Oligarch v. oligarch
Cherney was also locked in litigation with some of his former cronies. He sued former protégé Oleg Deripaska – a man whose name has floated at the periphery of US President Donald Trump’s Russian scandals—for $6 billion in 2007.
Another rival, Alexander Gliklad, sued Cherney in 2009, alleging that Cherney had bilked him out of his share of the aluminum fortune. The case took six years to litigate before Cherney was ordered to pay more than $505 million.
In the course of that lawsuit, Gliklad also sued Rina and Diana Cherneya, alleging that Cherney was hiding money in the form of loans, gifts and several of their front companies. One of those companies, McAnna LP, is listed as a co-owner of DJD Holdings, according to the letters in the Lash-Volkswagen case.
A New York state court judge awarded Gliklad summary judgment in his case, and the New York Supreme Court rejected the Cherney family’s appeal. Cherney would be held in civil contempt for failing to comply with post-judgment subpoenas and threatened with jail if he ever set foot in New York.