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The CEO of a New York-based RIA and two others were arrested Thursday on fraud charges tied to a massive scheme that bilked 17,000 investors across the U.S. out of more than $1.7 billion, according to the U.S. Attorney's Office for the Eastern District of New York.
David Gentile, 54, of Manhasset, New York, the founder, owner and CEO of asset management firm and RIA GPB Capital; Jeffry Schneider, 52, of Austin, Texas, the owner and CEO of GPB placement agent Ascendant Capital; and Jeffrey Lash, 51, of Naples, Florida, a former managing partner of GPB, were charged with fraud, wire fraud and conspiracy.
The same defendants and their affiliated entities were named in a Securities and Exchange Commission complaint. And the North American Securities Administrators Association (NASAA) announced that seven state securities agencies filed regulatory actions against them.
They were 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 and GPB Automotive Portfolio.
Gentile was to appear in federal court in Boston on Thursday, while Schneider was expected to appear in federal court in Austin, Texas, and Lash in federal court in Fort Myers, Florida.
SEC Complaint
In the SEC complaint filed Thursday in the U.S. District Court for the Eastern District of New York in Brooklyn, the regulator charged Gentile, Schneider, Lash and their affiliated entities with running a Ponzi-like scheme that allegedly raised over $1.7 billion from securities issued by GPB.
Gentile and Schneider lied to investors about the source of money used to make an 8% annualized distribution payment to investors, according to the SEC.
According to the complaint, the defendants, along with Ascendant Alternative Strategies, which marketed GPB's investments, told investors the distribution payments were paid exclusively with funds generated by GPB's portfolio companies.
However, as alleged, GPB actually used investor money to pay portions of the annualized 8% distribution payments.
In addition, GPB and Gentile, with the assistance of Lash, allegedly manipulated the financial statements of certain limited partnership funds managed by GPB to "perpetuate the deception by giving the false appearance that the funds' income was closer to generating sufficient income to cover the distribution payments than it actually was," the SEC alleged.
The SEC's complaint further alleged that GPB 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.
"The fraudulent scheme continued for more than four years in part because GPB kept investors in the dark about the limited partnership funds' true financial condition," according to the complaint.
