SEC v. GPB Capital Holdings, LLC, et al. was filed in the Eastern District of New York on February 4, 2021 by the SEC, alleging violations of federal law in connection with the defendants’ investment business, which allegedly raised over $1.7 billion from more than 17,000 investors. Specifically, the complaint alleges that the defendants violated the Investment Advisers Act, the Securities Act, and the Exchange Act, along with corresponding regulations.
Defendants GPB Capital, Ascendant Capital, and AAS are limited liability companies involved in asset management. Individual defendants are the owners or managers of the entities.
According to the complaint, GPB served as a general partner or manager of limited partnership funds. These funds were created to acquire interests in income-producing, middle-market private companies and provide them with managerial and operational assistance. Investments were marketed through the other entity defendants, Ascendant Capital and AAS, which then promoted the funds downstream to other broker-dealers. Investors paid substantial fees but were promised 8% annual interest on investments with monthly distributions and additional “special” distributions. Though the defendants claimed that the private companies were doing well and kept up on the monthly distributions, the SEC alleges that distributions were, at least in part, made out of other investors’ capital. The SEC also alleges that individual defendants recovered millions in fees that amount to improper self-dealing. Employees of the entity defendants allegedly began feeling uncomfortable with the way in which the defendants conducted the investments and distributions, and some made internal complaints while another released some information to the companies’ auditors.
The SEC asserts that defendants manipulated financial statements, defrauded investors while trading securities, misused fund assets, improperly provided investment advice in violation of the law, failed to file registration with the SEC, and impeded whistleblowers from communicating with the SEC. The SEC seeks to enjoin the defendants from further investment activities, disgorgement of ill-gotten profits, and civil damages.