A growing number of investors are presenting claims over investment losses with GPB Capital Holdings, indicating that the firm ran a Ponzi scheme, which has resulted in massive financial problems and several ongoing federal investigations.
GPB Capital Holdings focused on auto dealerships and waste management companies, but plaintiffs and critics say that it was using money from its investors to make the auto dealerships appear to be performing better than they actually were, and then using money from new investors to pay off prior investors, claiming the funds were a profit.
Troubles first began to appear when GPB Capital Holdings missed a filing with the Securities Exchange Commission (SEC) in April 2018. It stopped paying distributions in December 2018, and in March of this year the FBI raided its offices.
Amid allegations of a so-called “Ponzi” scheme, and claims that it had been falsifying its records, GBC Capital announced recently that the value of its two biggest investment funds have sharply declined, with some investors claiming they have lost between 25% and 75%. GPB focused on private placement investments, which are generally considered suitable only for accredited investors.
Some investors say they were not informed of the actual risks of the private placement. However, some are going further and saying the entire company was a scam.
Now, a growing number of investment fraud lawsuits are being filed against GPB, as well as brokers who sold its funds to investors, seeking to recover damages for financial losses.
Investigations are underway by the SEC, the FBI, the Financial Industry Regulatory Authority (FINRA), New Jersey, and Massachusetts. Of the 80 brokerage firms authorized to sell GPB investments, 60 are under investigation by Massachusetts officials.
Brokers are responsible for conducting due diligence and making sure investments being sold to their clients are legitimate.
In Ponzi schemes, a firm or individual offers high rates of investment returns, claiming there is little risk for investors. It pays early investors from investments by new investors, claiming the funds came from business growth.
This makes it look extremely profitable at first, but eventually new investors stop signing on or there are too many investors to spread the money out to make the investments appear profitable.
Things also often break down after concerns become public, and then it is revealed that there are no liquid assets, and investors generally suffer major losses unless they got out early. It is considered the financial market’s version of a pyramid scheme.
Reports suggest that GPB has raised about $1.8 billion from investors since 2013.