Investment company GPB Capital Holdings and three of its executives were charged with a Ponzi-like scheme to fraudulently raise more than $1.7 billion from thousands of investors, according to the U.S. Securities and Exchange Commission (SEC).
The SEC said GPB used funds from new investors to pay monthly returns of 8% to earlier investors, a classic Ponzi scheme. But the company told all investors that distributions were generated from profits of the company's investment portfolio.
The SEC named company owner and chief executive officer, David Gentile and three executives in the effort to defraud more than 17,000 retail investors. It also named Jeffry Schneider, the owner of Ascendant Capital - GPB Capital's placement agent, and former managing partner, Jeffrey Lash.
Through its investigation, the SEC alleged that the defendants had falsified financial statements and created back-dated performance reports to deceive investors into thinking that the company's investments were generating profits where none exist.
GPB issued a statement and denied the SEC's allegations. The company said that it had "acted in good faith" while managing its clients' investments.
"GPB denies these allegations and intends to vigorously defend itself in court where, for the first time, the firm will be able to present significant evidence in its favor," according to a statement.
Apart from the SEC, the state of New York also filed a lawsuit against the investment adviser on Thursday. New York Attorney General Letitia James said in the state's suit that GPB Capital and the three executives had defrauded investors out of more than $700 million.
New York's suit alleged that more than 1,400 New Yorkers were defrauded by around $150 million. The suit said that all of the investors were promised generous monthly distributions.
"We won't let Wall Street fat cats get away with breaking the rules, as they pilfer New Yorker's wallets in the meantime," James said.
The defendants were also accused of misappropriating their clients' investments and using them to fund lavish vacations, private plane subsidies, and other luxury items. James alleges in the state's suit that Gentile had even bought a brand new Ferrari.
