Massachusetts sues embattled private fund advisor

Regulators have filed the first government suit against GPB Capital, which has been beset by private lawsuits accusing it of fraud.

A $1.5 billion New York private fund was riven with conflicts of interests and self-dealing, Massachusetts regulators are claiming in a first-of-its-kind enforcement suit.

GPB Capital’s founder, David Gentile, hid his and his company’s relationship with its main broker-dealer, Ascendant Capital, and Ascendant’s leader, Jeffrey Schneider, from its early days, regulators in the Securities Division of Massachusetts secretary Bill Gavin’s office claim in a new lawsuit against GPB.

“Publicly, GPB Capital and Ascendant Capital sought to appear as two distinct companies, but in reality, they were one-and-the-same. Schneider was intimately involved in GPB Capital’s strategy and direction, and served as Gentile’s top confidant,” the 47-page complaint, filed in Boston May 27, claims.

“The line between Gentile, Schneider, GPB Capital and Ascendant Alterative Strategies and Ascendant Capital is blurred beyond recognition. The firms even share office space in Austin, Texas. The only difference between GPB Capital and the Ascendant entities is the e-mail addresses used. Gentile profited directly whenever GPB Capital paid Ascendant Alternative Strategies selling commissions,” the complaint states.

It’s the first enforcement against against GPB, which has been beset by private lawsuits accusing it of fraud. Its former CCO is under federal indictment, accused of leaking secrets about ongoing investigations of the fund to sweeten his job prospects.

Fund spokeswoman Nancy Sterling sent sister publication RCW a two-sentence statement that read, “We strongly disagree with the allegations in this administrative complaint and will vigorously oppose them. We are confident that the resolution of this Massachusetts matter will be fair and just.”

Complaints offers possible lessons

Massachusetts’ complaint suggests that the high fees and complex structure of the firm were warning signs to B-Ds. The complexity, the lawsuit claims, helped GPB principals hide the fact that they were often profiting from both sides of transactions. GPB’s “funds have a number of sub-funds, and those sub-funds have various ownership interests in portfolio companies,” the complaint states.

“Some of GPB Capital’s funds jointly own portfolio companies, like the Prime Automotive Group,” the complaint states. “Moreover, the property on which many dealerships sit is owned by separate companies under the GPB Capital umbrella. GPB Capital has many hundreds of bank accounts under its purview. GPB Capital-related individuals like Gentile, [former auto dealer and Gentile business partner Jeffrey] Lash, Car Executive 1, and Schneider all have various ownership interests related to GPB Capital. Unbeknownst to investors, companies in which individuals like Gentile had ownership stakes engaged in transactions with GPB Capital-related entities.”


GPB reimbursed B-Ds and investment advisors who attended due diligence meetings the firm organized. It also circulated the third-party due diligence reports that GPB itself had paid for, the suit claims.

GPB and Ascendant marketed the funds hard, Massachusetts regulators claim. Between December 2018 and January 2020, Ascendant internal sales reps made 21,000 calls to investment advisers or B-Ds, the complaint states. Its external sales teams made 6,500 calls between January 2019 to January 2020.

“GPB Capital repeatedly hammered investors with two key selling points – a yearly 8 percent distribution paid monthly, and distributions that were paid-from operating profits. GPB Capital and Schneider carefully constructed the narrative that unlike a traditional risky private placement, where an investor places chips on a roulette table hoping for a positive outcome, investing in a GPB Capital fund would provide a continuous stream of income in addition to a big payday upon exit,” the complaint states.

‘Unable to deploy’

The firm was able to keep its promises of 8 percent returns for a while, but eventually, as it raised more money, “it was unable to deploy its capital efficiently,” the complaint stated.

“Instead of limiting contributions until capital was deployed, GPB Capital continued to take on new investors, especially for GPB Automotive and GPB Holdings II,” it stated. “As investor contributions increased, so did the capital required to continue to pay investor distributions. While GPB Capital maintained authority to suspend distributions whenever it wishes, the firm continued to make its monthly distributions in order to maintain appearance and stay attractive to investors.”

That, in turn, led the firm to dip “into other sources of income, contrary to statements made in its private placement memoranda and marketing materials.”

The unmentioned oligarch

Extensive as the complaint is, it doesn’t mention, directly or indirectly, two other GPB partners. Sisters Rina and Diana Chernaya are the daughters of Russian oligarch Michael Cherney. Documents obtained by RCW show that they profited from some of GPB’s earliest dealings, through their ownership of a company called McAnna, which in turn had an ownership stake in a company acquired by GPB in a series of deals between March 2013 and the late winter of 2014.

A New York state court judge found that McAnna was a front that Cherney used to hide his money from another oligarch’s lawsuit. The judge took the unusual step of holding Cherney in civil contempt, ordering him locked up until he cooperates with the judge’s order. Cherney lives freely in Israel.

This article first appeared in sister publication RCW