Manhasset Resident Indicted For $1.7 Billion Equity Investment Fraud

United States District Courthouse for the Eastern District of New York, 225 Cadman Plaza East, Brooklyn. (Photo source: Google Maps)

Manhasset resident David Gentile, 54, was arrested on Thursday, Feb. 4 after being indicted for private equity investment fraud. Federal prosecutors of the Eastern District of New York charged three individuals affiliated with GPB Capital Holdings, LLC (GPB) with securities fraud, wire fraud and conspiracy.

At an initial court appearance, he was released on a $500,000 bond co-signed by his wife and directed to surrender firearms he has at his homes in Manhasset, New York, and Clearwater, Florida.

David Gentile (Photo source: LinkedIn)

Gentile and two other executives are accused of using the funds to cover shortfalls and enrich themselves instead of securing returns for their customers. Some 17,000 investors were affected, about 4,000 of them seniors, according to a related complaint by the U.S. Securities and Exchange Commission.

Gentile, the founder, owner and Chief Executive Officer of GPB; Jeffrey Schneider, the owner and CEO of Ascendant Capital LLC (Ascendant); and Jeffrey Lash, a former managing partner of GPB, are charged with engaging in a scheme to defraud investors by misrepresenting the source of funds used to make monthly distribution payments to them and the amount of revenue generated by two of GPB’s investment funds, GPB Holdings, LP and GPB Automotive Portfolio, LP. The day defendants were arrested, Gentile appeared in federal court in Boston, Massachusetts, Schneider in Austin, Texas, and Lash in Fort Myers, Florida.

Seth D. DuCharme, Acting United States Attorney for the Eastern District of New York, and William F. Sweeney, Jr., Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office (FBI), announced the charges.

“As alleged, by paying investors from an undisclosed and improper source such as investor capital, the defendants repeatedly misled investors about the health and performance of their investments,” DuCharme stated. “This office is committed to ensuring honesty and integrity in the management of investment funds.”

The Securities and Exchange Commission (SEC), New York Regional Office, Business Integrity Commission and the New York City Police Department supported and assisted during the investigation.

As detailed in the indictment and other court documents, GPB, founded by Gentile in 2013, described itself as an alternative asset manager that acted as general partner and manager for other funds, which invest in businesses from automotive retail to waste management to health care, according to the SEC. GPB served as the general partner of several investment funds, including GPB Holdings, LP, GPB Holdings II, LP, GPB Automotive Portfolio, LP, GPB Waste Management, LP and GPB Cold Storage, LP, known collectively as the GPB Funds. The business of GPB Capital was to manage the GPB Funds, which raised and invested capital in a portfolio of private equity investments. Gentile and Schneider worked closely together on the founding, development, operation and marketing of the GPB Funds. From 2013 through early 2018, Lash was responsible for overseeing the GPB Funds’ investments in car dealerships, which made up a sizable percentage of GPB’s portfolio companies.

“The defendants misrepresented the holdings of GPB Capital through deceptive marketing practices, luring investors with promises of monthly distributions that would be covered by funds from the investments and not drawn from underlying invested capital,” William Sweeney, the head of the Federal Bureau of Investigation’s New York office, said in a statement. “As we allege today, however, this was all a lie. In truth, a significant portion of GPB’s distributions were paid directly from investor funds.”

Specifically, Gentile and Schneider, both individually and through employees at Ascendant, represented to investors in Holdings I, Holdings II and Automotive Portfolio that the GPB funds would make a monthly distribution payment to investors that would be fully covered by funds from operations, meaning that the companies purchased by the funds would be sufficiently profitable for the monthly payments to be made from the companies’ cash flow, without drawing from capital raised by investors.

According to the indictment and despite the defendants’ representations, investor capital was used to pay for a significant portion of the distributions made to investors in each of these funds. Gentile and Schneider were aware that the GPB Funds were underperforming, and authorized repeated distribution payments that used investor funds to cover income shortfalls, to the obvious detriment of investors.

On Feb. 5, Gentile stepped down as CEO and GPB CFO Rob Chmiel was named interim CEO.

If convicted, the defendants each face up to 20 years’ imprisonment as well as a fine of as much as $5 million on the securities fraud count.


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