Private Placements

GPB Capital Investors Suffer Massive Losses of Up to 60% – Investment Recovery

June 23, 2019 | by Staff Attorney

Our firm represents multiple clients who have been recommended GPB Capital Holdings (GPB Capital) related investments. GPB invests in a variety of businesses but primarily in auto dealerships and waste management businesses. However, over the past year controversy has embroiled GPB Capital in a saga including multiple regulatory investigations and even an FBI referral which has left investors clueless to the fate of their investments.

Recently, GPB Capital released its own internal analysis and valuation of its funds without providing any evidence to support its findings. The results were not good for investors. As reported by InvestmentNews, the two largest funds offered GPB Holdings II and GPB Automotive Portfolio have declines of 25.4% and 39%. However, some of the other funds, like Armada Waste, fared much worse declining to only 32% of their original value. Again these valuations are provided by GPB Capital and only after a year of accounting mishaps.

As a background, financial advisers sold $1.5 billion of these high-risk private placements offered by GPB Capital Holdings. More than a year ago GPB Capital was supposed to file registration forms with the SEC for two of its largest funds to make certain accounting and financial disclosures required under the securities laws. However the company did not meet its deadline back in April 2018 and now over a year later has no firm date when annual reports for the two funds will be filed and the public has no clue what those values will look like.

Private Placement Recovery Options – Investment Attorney

June 19, 2019 | by Staff Attorney

At Gana Weinstein LLP, we often hear from investors who were recommended by their advisors to purchase high risk private placement investments and suffered substantial – often crushing losses as a result. Our firm regularly represents these investors in disputes with the advisors and brokers who sold these products without adequate disclosure. Brokers have a responsibility to conduct due diligence on all private placement offerings. Due diligence includes an investigation into the investment’s properties including its benefits, risks, tax consequences, issuer, history, and other relevant factors.

Private placements are bond, equity, or other debt instruments issued in reliance on a statutory or rule-based exemption from the registration requirements administered by the (SEC). The private placement industry was created based upon the reasoning that exempting private placements from registration is appropriate where purchasers have the economic ability, sophistication, and the professional advice necessary to do without the regular protection afforded by the disclosures required through registration. According to sources, a total of $33.5 billion was raised in 647 transactions through the third quarter of 2018.

Recently FINRA put out an announcement that called out the shortcomings it observed in the industry when it comes to due diligence. FINRA found that firms “failed to conduct reasonable diligence on private placements and failed to meet their supervisory requirements.” FINRA stated that firms that performed “reasonable diligence conducted meaningful, independent research on material aspects of the offering; identified any red flags with the offering or the issuer; and addressed and resolved concerns that would be relevant to a potential investor.” Firms should have a due diligence process such as “creating a due diligence committee (at larger firms) or otherwise formally designating one or more qualified persons (at smaller firms), and charging them with investigating and determining whether to approve the offering for sale to investors.” The crucial ingredient is for “firms independently verified information that was key to the performance of the offering…”

Advisor Kevin Wilson Subject to Multiple Customer Disputes Over Private Placements

February 3, 2019 | by Staff Attorney

According to BrokerCheck records financial advisor Kevin Wilson (Wilson), currently employed by National Securities Corporation (National Securities) has been subject to at least four customer complaints. According to records kept by The Financial Industry Regulatory Authority (FINRA), most of Wilson’s customer complaints allege that Wilson committed violations of the securities laws with respect to the sale of predominately private placement securities. These private placement sales occurred while Wilson was employed by Laidlaw & Company (UK) Ltd. (Laidlaw).

The securities lawyers of Gana Weinstein LLP recently filed a complaint on behalf of a client alleging that Laidlaw & Company (UK) Ltd. (Laidlaw) recommended the investor purchase a micro cap stock underwritten by the firm in violation of the securities laws. According to newsources and public filings Laidlaw and its brokers have been involved in the fraudulent promotion of small and micro cap stocks to their clients in violation of their duties to their clients to disclose conflicts of interests.

Recently, one of Laidlaw’s clients, Barry Hoing (Hoing), was charged by The Securities and Exchange Commission (SEC) for generating $27 million through a “classic pump-and-dump scheme.” The SEC’s allegations focus on stocks including BioZone Pharmaceuticals (now Cocrystal Pharma) (COCP), MGT Capital (OTC: MGTI), and MabVax Therapeutics (OTC: MBVX). However, other public filings reveal Hoing was also involved in other stocks including Riot Blockchain (RIOT), PolarityTE (PTE formerly COOL), and Marathon Patent Group (MARA). In addition, Laidlaw was involved in other private placement securities offerings including Aethlon Medical, Actinium, Boston Therapeutics, 5G Investment, Alliaqua, Aspen Group, Brazahav Resources, Fusion Telecoms International, Protea Biosciences Group, Aeolus Pharmaceuticals, Medovex Corp, Relmada Therapeutics, Sevion Therapeutics, Spectrascience, and Spherix.

Advisor Samuel Monchik Subject to Complaints Over Alternative Investments

December 31, 2018 | by Staff Attorney

Advisor Samuel Monchik (Monchik), currently employed by Geneos Wealth Management, Inc. (Geneos Wealth) has been subject to at least two customer complaints. According to a BrokerCheck report many of the customer complaints concern alternative investments and direct participation products (DPPs) such as non-traded real estate investment trusts (REITs), oil & gas programs, annuities, and equipment leasing programs. The attorneys at Gana Weinstein LLP have extensive experience handling investor losses caused by these types of products.

In August 2018, a customer filed a complaint alleging that Monchik made unsuitable recommendations, breach of fiduciary duty, and failure to adequately disclose the risks in REITs and direct investments – DPP & LP interests purchased between March of 2008 and November of 2015. The complaint is currently pending.

In July 2017 a customer filed a complaint alleging that Monchik made unsuitable recommendation of an oil & gas investment in June 2008. The complaint was denied by the firm.

In September 2008 FSC Securities Corporation terminated Monchik’s alleging that he violated the firm’s policies with respect to transactions in Non-Traded REITs.

GPB Capital Investors Await Accounting Revisions

September 30, 2018 | by Staff Attorney

The law offices of Gana Weinstein LLP have previously reported on their investigation into GPB Capital Holdings (GPB Capital) and its dispute with a former business partner Patrick Dibre (Dibre) who allegedly reneged on the sale to GPB Capital of certain auto dealerships causing the fund to lose $40 million according to GPB’s complaint. That litigation is still playing out in court.

GPB Capital has raised an astonishing $1.8 billion in investor money since 2013. However as reported, GPB will stop raising new money for now to focus on accounting issues and financial statements of its two large funds. Subsequent reporting has alerted the public that investors should no longer rely on 2015 and 2016 financial statements and independent accounts’ reports for: GPB Automotive Portfolio, ($622.1 million); GPB Holdings II, ($645.8 million); and GPB Holdings Qualified. Apparently, these accounting revisions are only being made because GPB Capital missed an April 30 deadline to file financial statements with the Securities and Exchange Commission (SEC) which crossed industry thresholds for making such information public more than a year ago.

Investors should be concerned at this point as it is highly unusual for funds’ of this size to cease raising funds unless there are serious concerns. Moreover, delays in reporting financials and the need to release new reports concerning financial statements made three years ago are highly troubling. This suggests potentially multiple years of false information or a size and nature that is currently unknown.

Premium Point Investments Investor Recovery Options

July 30, 2018 | by Staff Attorney

The law offices of Gana Weinstein LLP are investigating Premium Point Investments, LP (Premium Point) and allegations made by The Securities and Exchange Commission (SEC) announcing that it has charged the New York based investment adviser with inflating the value of private funds it advised by over $200 million dollars. In the complaint the SEC also charged Premium Point’s CEO Anilesh Ahuja (Ahuja) and Amin Majidi (Majidi), a former partner and portfolio manager at the firm, among others charged.

According to the complaint, Premium Point described itself as focused on investment opportunities in securities, mortgages, loans, real property, and consumer receivables. However, the fund did not perform well the SEC alleged it ran a scheme from at least September 2015 through March 2016 by inflating the value of its portfolio to hide the poor performance. The fund purportedly engaged in a secret deal where in exchange for sending trades to a broker-dealer, Premium Point received inflated broker quotes for certain mortgage-backed securities (MBS). Another deceptive technique was the alleged use of imputed mid-point valuations that further inflated the value of securities.

Premium Point’s fraud began to unravel after its auditor questioned the valuation practices in 2015. At that time Premium Point told investors it had overvalued all of its funds by 13 percent to 15 percent from September 2015 to March 2016. However, there are substantial variation between funds and Premium’s flagship fund – the Mortgage Credit Hedge Fund, is alleged to have been mismarked by as much as 24 percent dating back to at least January 2014.

GPB Capital Investor Recovery Options

June 27, 2018 | by Staff Attorney

The law offices of Gana Weinstein LLP are investigating GPB Capital Holdings (GPB Capital) and its dispute with a former business partner Patrick Dibre (Dibre) who allegedly reneged on the sale to GPB Capital of certain auto dealerships causing the fund to lose $40 million according to GPB’s complaint. The complaint alleged that between December 2013 and April 2015 GPB Capital advanced Dibre $42 million for auto dealerships he then failed to deliver. The lawsuit claims that Dibre failed to provide required notices to start the sales process of five dealerships.

Dibre owned auto dealerships in the New York area and purportedly held himself out to the GPB Capital as the person who could build out GPB Capital’s auto dealership business. Instead of that happening, the complaint alleges that Dibre informed automobile manufacturers that they should withhold their approval of GPB Capital owning and operating dealers because of claimed malfeasance. However, GPB Capital alleges that Dibre is negotiating for the sale of the same dealerships to an investment fund.

At this time it unclear the ultimate financial impact this failed transaction will have on GPB Capital Holding’s funds which include:

CEO of Brokerage Firm Financial West Group Sanctioned Over Private Placement Practices

December 3, 2017 | by Staff Attorney

According to BrokerCheck records the CEO and Chief Compliance Officer of Firm Financial West, Gene Valentine (Valentine) has been subject to one customer complaint, three tax liens, and one regulatory action. According to records kept by The Financial Industry Regulatory Authority (FINRA) Valentine has been accused by FINRA of failing to have supervisory procedures for due diligence on private placement offerings.

FINRA alleged that from October 1, 2008, through June 30, 2015, Financial West’s written supervisory procedures failed to address the firm’s due diligence process for private placements. FINRA found that Financial West’s written supervisory procedures did not describe the process for approving private placement offerings and did not describe how or when to evaluate private placement offerings. FINRA also found that the firm failed to consistently follow the written procedures that did exist such as failing to document the review as described in the procedures.

Under FINRA Regulatory Notice 10-22 firms are provided with detailed guidance while reminding them of their “obligation to conduct a reasonable investigation of the issuer and the securities they recommend” in private placement offerings. The notice also provides that a firm’s supervisory procedures must be reasonably designed to ensure that the firm engages in a rigorous due diligence process. In order to comply with FINRA’s rules and “[t]o demonstrate that it has performed a reasonable investigation, a [firm] should retain records documenting both the process and results of its investigation.” In this case, FINRA found that Financial West failed to meet these requirements.

Gana LLP Investigates David A. Noyes Sales of Behavioral Recognition Systems (a/k/a Giant Grey)

October 8, 2017 | by Staff Attorney

The securities lawyers of Gana Weinstein LLP are investigating investor losses in Behavioral Recognition Systems (BRS) – now known as Giant Grey. Investors have contacted our firm concerning Scott Reed a former executive at brokerage firm David A. Noyes & Company (David Noyes) who recommended stock in BRS to dozens of clients raising millions of dollars for the company. David Noyes also sold other private placements including Power Energy Systems, Farris Floral, Evotem, and Digonex Technologies to investors.

BRS marketed itself to investors as a company that makes artificial intelligence technology that analyzes video information. Ray Davis (Davis) founded Behavioral Recognition Systems in 2005 and ran the company until 2015. Davis raised $47 million for BRS and in 2010 hired his son, Charles, to be an executive vice president.

According to a lawsuit BRS (Giant Gray) accused Davis of defrauding the company out of $15 million by setting up a series of companies to disguise transactions as legitimate services. Instead, the company claims that Davis invoiced millions of dollars for non-existent services and used the money to support his lavish lifestyle.

ICON Equipment Leasing Sanctioned By SEC Over False Valuations

September 19, 2016 | by Staff Attorney

The Securities and Exchange Commission (SEC) announced that ICON Capital LLC, an entity that manages equipment leasing funds, agreed to settle charges that it caused four of its funds to report materially inaccurate financial results in their SEC filings and pay a $750,000 penalty.

Our firm has represented many clients in equipment leasing products like LEAF and ICON. All of these investments come with high costs that do not compensate investors for the extreme risk being taken. Equipment leasing funds historically underperform even safe benchmarks, like U.S. treasury bonds. Investors are destined to lose money in equipment leasing programs like LEAF Equipment Leasing Income Funds I-IV and ICON Leasing Funds Eleven and Twelve. The high costs and fees associated with these investments make significant returns virtual impossibility. Further, investor often fail to understand that they have lost money under many years after agreeing to the investment. In sum, for all of their costs and risks, investors in these programs are in no way additionally compensated for the loss of liquidity, risks, or cost.

On top of these high risks, the SEC has now found that the funds’ opaque nature has allowed the funds to hide more investor losses. According to the SEC’s order instituting a settled administrative proceeding, the four funds’ financial results were misstated due to accounting errors relating to the impairment of assets and that ICON failed to comply with Generally Accepted Accounting Principles (GAAP) on multiple occasions.