On February 4, 2021, the Securities and Exchange Commission (“SEC”) filed a complaint against GPB Capital Holdings, LLC, Ascendant Capital, LLC, Ascendant Alternative Strategies, LLC, David Gentile, Jeffry Schneider and Jeffrey Lash (collectively, “Defendants”). 

Summary. The Complaint filed by Plaintiff SEC provides the following Summary of the allegations underlying its numerous claims for relief against the Defendants:

1. This case concerns a long-running and multi-faceted fraudulent scheme perpetrated by GPB Capital, a registered investment adviser; its owner and CEO, Gentile; AAS, a registered broker-dealer, and its branch office, Ascendant Capital; Schneider, the owner and CEO of Ascendant Capital; and Lash, a former managing partner of GPB Capital.
2. GPB Capital describes itself as a New York-based alternative asset management firm that acts as a general partner and fund manager for limited partnership funds. The limited partnership funds invest in various businesses with a focus primarily on automotive retail, waste management, and healthcare (collectively, the “Portfolio Companies”). Since its founding in 2013, GPB Capital has raised in excess of $1.7 billion for at least five limited partnership funds from approximately 17,000 retail investors nationwide, approximately 4,000 of whom are seniors. Nearly all of the $1.7 billion raised is still at risk: in 2018 GPB Capital suspended all redemptions and distributions and, according to a recent regulatory filing, GPB Capital’s assets are far below its obligations to the investors.
3. To existing and prospective investors in the limited partnership funds, GPB Capital projected an aura of success, touting that it consistently made an 8% annualized distribution payment to investors, as well as periodic “special distributions” ranging from 0.5 to 3%. GPB Capital, Gentile, AAS, Ascendant Capital, and Schneider (collectively, the “GPB and Ascendant Defendants”) stressed in the offering and marketing materials for the limited partnership funds that GPB Capital made the distribution and special distribution payments exclusively with funds from operations of the Portfolio Companies.
4. But the aura of success portrayed by the GPB and Ascendant Defendants was an illusion. In reality, GPB Capital used investor funds to cover the shortfall between funds from operations of the Portfolio Companies and the amount needed to make an annualized 8% distribution payment. GPB Capital and Gentile, with substantial assistance from Lash, also manipulated the financial statements for two of the limited partnership funds in the early years of the offering to give the false appearance to prospective investors and investors that the Portfolio Companies were generating sufficient income to cover the distribution payments to investors.
5. In addition, GPB Capital and Ascendant Capital made material misrepresentations and omissions to prospective investors and investors in offering and marketing materials concerning millions of dollars in fees and other compensation received by Gentile, Schneider, and Ascendant Capital. GPB Capital and Gentile also failed to disclose Gentile’s and Schneider’s inherent conflict of interest in acquisition-related decisions on account of the undisclosed fees they received in connection with those acquisitions.
6. The fraudulent scheme continued for more than four years in part because GPB Capital kept investors in the dark about the limited partnership funds’ true financial condition. GPB Capital has not delivered audited financial statements for the limited partnership funds to investors for more than four years and is more than three years delinquent in registering two of the limited partnership funds with the Commission, as required by Section 12(g) of the Securities Exchange Act of 1934 (the “Exchange Act”).
7. Lastly, in addition to the foregoing violations, GPB Capital included language in certain of its separation and consulting or transition agreements to impede former employees from communicating directly with the Commission and retaliated against a known whistleblower, in violation of Section 21F of the Exchange Act.

Claims for Relief. The SEC’s Complaint seeks relief based on the following Claims:

1. Violations of, and Aiding and Abetting Violations of, Section 17(a) of the Securities Act (defendants GPB Capital, Ascendant Capital, AAS, Gentile and Schneider)
2. Aiding and Abetting Violations of Section 17(a) of the Securities Act (defendant Lash)
3. Violations of, and Aiding and Abetting Violations of, Section 10(b) of the Exchange Act and Rule 10b-5 Thereunder (defendants GPB Capital, Ascendant Capital, AAS, Gentile and Schneider)
4. Aiding and Abetting Violations of Section 10(b) of the Exchange Act and Rule 10b-5 Thereunder (defendant Lash)
5. Violations of Sections 206(1) and (2) of the Advisers Act (defendants GPB Capital and Gentile)
6. Violations of Section 206(4) of the Advisers Act and Rule 206(4)-2 Thereunder (defendant GPB Capital)
7. Violations of Section 206(4) of the Advisers Act and Rule 206(4)-7 Thereunder (defendant GPB Capital)
8. Violation of Section 12(g) of the Exchange Act (defendant GPB Capital)
9. Violations of Section 21F of the Exchange Act and Rule 21F-17(a) (defendant GPB Capital)

Prayer for Relief. The SEC demands a jury trial and requests the Court enter judgment providing relief, to include but not limited to, the following:

1. Permanently enjoining Defendants from committing, aiding and abetting or otherwise engaging in conduct that would make them liable for the violations of the federal securities laws alleged in this complaint.
2. Ordering Defendants to disgorge all ill-gotten gains they received directly or indirectly, with pre-judgment interest thereon, as a result of the alleged violations, pursuant to Exchange Act Section 20(d)(5) [15 U.S.C. § 78u(d)(5)] and Sections 6501(a)(1) and (a)(3) of the National Defense Authorization Act for Fiscal Year 2021, Pub. L. No. 116-283, to be codified at 15 U.S.C. §§ 78u(d)(3) and 78u(d)(7).
3. Ordering Defendants to pay civil monetary penalties under Securities Act Section 20(d) [15 U.S.C. § 77t(d)], Exchange Act Section 21(d)(3) [15 U.S.C. § 78u(d)(3)], and Advisers Act Section 209(e) [15 U.S.C. § 80b-9(e)].