If you are invested in one of several GPB Capital funds, you likely have no doubt heard some of the recent news over the past year or longer and you have likely begun to question the status or value of your GPB Capital investment, and you are now likely considering your options and your next step.
GPB Capital Holdings, LLC has several limited partnership funds that were offered to public “main street type” investors. Many such investors like yourself probably purchased those investments based on a recommendation by your trusted financial advisor through a broker-dealer firm responsible for supervising that financial advisor. That broker-dealer firm also had regulatory and other obligations to properly supervise the financial advisor, any recommendations, your account(s), any transactions in your accounts, etc.
What’s more, most financial advisors could not recommend GPB Capital fund investments to customers like you unless and until they performed a proper level of due diligence (independent investigation) such that the firm had to approve the investments for sale by the financial advisor in general from the very outset.
GPB Capital describes itself as a New York-based alternative investment management firm. The firm raised over $1.5 billion in capital from you and other investors for a series of private limited partnership funds investing in various aspects of auto dealership, waste management businesses and other businesses.
A number of financial advisors have avoided updating their investor clients regarding this investment as the news has been decidedly one-sided and very much negative. Aside from terrible service, this also raises concern for many investors, discomfort as well as other potential issues.
Nobody likes to feel like they are getting left in the dark, but when information is coming out that some financial advisors were motivated in their recommendations by very high commission payouts, but now after receiving those payouts, they are leaving investor clients to fend for themselves, or find basic information and updates on their own is unfortunate.
What is also unfortunate is that many investors are encouraged to “wait” on GPB Capital and that recommendation is not based on any current information or what is in the best interest of investors, but rather self-motivated in an effort to avoid what could be reported as a customer dispute on their or their firm’s public record with the Financial Industry Regulatory Authority (FINRA).
In litigation pending in Pennsylvania court (unrelated to GPB Capital) there are allegations suggesting that at least one compliance officer responsible for reviewing and conducting on a GPB Capital limited partnership investment fund identified one or more red flags and was not inclined after performing a due diligence investigation to approve that GPB Capital fund for sale to investors.
Those allegations suggest that there were red flags that were available and potentially known (or should have been known) by broker-dealer firms approving GPB Capital investments as early as 2016.
Since that time, many broker-dealer firms continued to approve GPB Capital investments and make them available to financial advisors, and many financial advisors not only recommended an initial investment in GPB Capital investment funds but then went on to recommend more investments to the same clients.
In some cases, these recommendations were being made to investors while the GPB Capital auditor resigned. That auditor allegedly refused to provide a clean audit opinion to GPB Capital due to undisclosed related party transactions and possibly other irregularities.
In litigation matters pending in New York and more recently in other litigation pending in Massachusetts there are allegations in multiple cases involving GPB Capital business partners alleging that the certain activities were “Ponzi-like” or making similarly disconcerting allegations. The various allegations in different matters along with the auditor resignation may bother many investors, but for most, it has been the pending investigations related to GPB Capital by the State of Massachusetts, the SEC, the FBI, and FINRA.
While most investors found themselves holding their breath after the news broke regarding these various events, it was not until the recent June 2019 updated financial were disclosed that there was a proverbial straw that broke the camel’s back from many investors. Based on the June 2019 financial reporting (which is still not current), the value of GPB Capital investment funds are down anywhere from 25% to over 70%. This of course only came out after investors were informed that distributions had been stopped (and many investors only purchased GPB Capital investments for those distributions).
Further raising the ire of many investors has been the information they are getting after the updated financials and after the cessation of distributions — namely that they are now finding out that the high commissions paid to the financial advisors and broker-dealer firms that recommended GPB Capital was coming out of their own funds, as was all or most of the distributions they previously did receive.
For many investors the discovery that the recommendation of the GPB Capital investment was motivated by a financial incentive to the broker-dealer firm and financial advisor that was sometimes 3x, 4x, or even 5x the incentive that could have been earned had a more appropriate or suitable investment been recommended is enough to convince the investors that their financial advisor and broker-dealer firm were looking out for their own bottom line and not the investor’s best interest, and often time with an undisclosed conflict of interest or ulterior motive.
At the same time, finding out that prior distributions were merely a partial return “of” their original investment and not a return “on” their investment has been shocking as well to many investors, as the representations by the financial advisors and broker-dealer firms were often not very clear in making such a material disclosure upfront.
What Are GPB Capital Investors Doing Now?
1) Some GPB Capital Investors are choosing to do nothing.
They will merely sit back and hope for the best. Some investors can afford to consider this option and others cannot sit idly by and accept this option, either for financial or personal, moral, or other reasons. This may appear to be an easy path to choose, but it should not be taken likely as there are likely to be unforeseen costs for investors following this path.
For example, most investors choosing this option are merely choosing to delay what may be taking action later, and those opting for a “wait and see” approach need to consider the following: (a) any claim considered will involve a statute of limitations. These are time bars that cut off an investor’s right to bring a particular claim or cause of action; (b) even if not necessarily time-barred an investor’s decision to wait may be viewed negatively by a trier of fact later in a future action where the damages potentially awarded could be lowered if it is perceived that the decision to wait was a strategic decision by an investor aware of his or her options.
Simply delaying action may seem like an innocuous decision, but if it appears to be a deliberate decision to “sit on your hands” or wait and see if there may be a better option, it could negatively impact potential damages and defenses in a later case.
2) GPB Capital Investors Can File Class Action Lawsuits.
While again a seemingly easy decision on the surface, most class action cases are aimed at GPB Capital itself and what conduct, representations, statements were made to investors. As most investors relied upon a recommendation by a financial advisor or broker-dealer firm to review that material, interpret it, perform due diligence investigations, and then make recommendations based on their individual investment objectives, risk tolerance, goals, etc. there may be some potential issues in these cases achieving class certification in the near term.
A multi-district class action litigation could involve several months or even more than a year simply trying to obtain class certification. Even if “successful” for a class action, investors should investigate the outcome of similar class actions historically. For many, the overall recovery is a substantial figure such that it results in a significant award of attorney’s fees, but often leaves investors with little in the way of a significant personal recovery based on their original capital investment.
While those investors serving as a class representative may obtain a higher recovery, they are also the ones on the firing line so to speak having to sit for depositions and be present at court hearings, etc. Most investors are not interested in taking on that level of time and commitment to a case that is not specifically aimed at maximizing their recovery.
3) GPB Capital Investors Can Take Individual Action
This option may seem daunting at first, but it may not be as difficult as some investors perceive. Typically this type of claim is a FINRA customer dispute arbitration claim. This is a private, confidential, expedited proceeding. While FINRA serves as a regulator overseeing the activities of financial advisors and broker-dealers, there is a separate office for customer dispute resolution that processes these disputes. These claims are typically nothing like state or federal court litigation.
While there is a discovery phase, that is generally limited to an exchange of documents and there are generally no depositions. Experienced attorneys can assist you and beyond gathering some documentation, you can likely leave most of the process up to your attorney. As an arbitration case, it is typically faster and more efficient, but there are also provisions for fast-tracking claims where age or health issues are a concern.
Statistically, the overwhelming majority of cases get settled and your selection of an experienced securities arbitration attorney can make a big difference in your ability to maximize your potential recovery in this type of claim.