Securities Fraud Convictions Upheld for GPB Capital Executives
A federal court has upheld the convictions of David Gentile and Jeffry Schneider, who were found guilty of securities fraud, conspiracy to commit securities fraud, and wire fraud on Aug. 1, 2024.
Judge Rachel P. Kovner of the United States District Court denied the defendants’ motions for acquittal, a new trial and dismissal of the indictment, citing sufficient evidence and rejecting claims of prosecutorial misconduct.
Gentile, the founder of GPB Capital Holdings LLC, and Schneider, a managing partner, were previously convicted after the seven-week trial in federal court in downtown Brooklyn. This trial revealed they had misled investors about the source of funds used for distributions and affected approximately 17,000 investors in New Jersey and across the United States.
In 2021, the U.S. Department of Justice, along with the U.S. Securities and Exchange Commission, charged Gentile, Schneider and another senior executive, Jeffrey Lash, with a number of fraud charges, including creating a Ponzi-like scheme and securities fraud, wire fraud, and conspiracy.
Also in 2021, the North American Securities Administrators Association reported that seven state securities agencies had filed regulatory actions against GPB Capital Holdings LLC and others for their alleged involvement.
Between 2013 and 2018, Schneider and affiliates raised more than $1.8 billion through the sales of unregistered, high-commission limited partnership interests in a series of eight alternative asset investment funds managed by GPB Capital and Gentile. The scheme was mainly carried out through four of the eight funds managed by GPB Capital and Gentile, consisting of: GPB Automotive Portfolio LP; GPB Holdings LP; GPB Holdings II, LP; and GPB Waste Management LP (collectively, “the GPB Funds”). Nearly $1.7 billion was invested in these four GPB Funds.
According to court documents, Gentile had little to no experience with fund structures and could not have set up GPB Capital or the GPB Funds without substantial help. He got that help from Schneider.
GPB Capital similarly described Schneider as the “co-creator” with Gentile of the overall business plan. Both Schneider and Gentile stated under oath that they jointly developed GPB Capital and its fund structures. Others have described Schneider and Gentile as “essentially partners.”
Schneider is a former securities broker with a history of association with questionable or demonstrably fraudulent activity. Two of his former employers – J.P.R. Capital Corp. and IMS Securities Inc. – were expelled from the securities industry by the Financial Industry Regulatory Authority. While working at another firm, Paradigm Global Advisors LLC as a marketer, Schneider helped create a co-branded fund with R. Allen Stanford. Although Schneider’s fund was not accused of wrongdoing, Stanford was later convicted and sentenced to 110 years in prison in connection with a $7 billion Ponzi scheme, the second-largest in history. Schneider also marketed Ponte Negra Fund I, LLC, a private investment fund that was revealed to be an accounting fraud.
During the time period examined in the Gentile and Schneider jury trial, investors were lured with false and misleading promises of reliable monthly returns “fully covered” by operating profits, even as they increasingly relied on Ponzi financing, using new investors’ capital contributions to pay prior investors the monthly distributions.
According to court documents, the defendants and others affiliated further harmed investors by repeatedly diverting and misappropriating fund assets for their own benefit, including by engaging in undisclosed related-party transactions. The defendants and others affiliated earned tens of millions of dollars in fees and commissions on continuing sales of the GPB Funds even as they destroyed long-term value for investors.
As of June 2019, GPB Capital estimated the fair market value of the funds’ portfolio assets at approximately $1 billion, representing more than a 40% loss on investors’ initial capital contributions.
In the summer 2024 trial, prosecutors demonstrated that the defendants falsely claimed distributions were funded by income from portfolio companies, when in reality, they were paid using investor capital. Evidence also showed the use of backdated performance guarantees to inflate reported income. Gentile was additionally convicted on two counts of wire fraud.
The jury’s verdict was based on the government’s presentation of financial reports and communications showing distributions exceeding net investment income, indicating the use of investor capital. Witness testimonies, including from financial advisers and investors, corroborated the government’s claims, stating they would not have invested had they known the true source of the distributions. The jury found these misrepresentations to be material and that the defendants acted with intent to defraud.
In its motions for acquittal, a new trial, and dismissal of the indictment, the defense argued that there was insufficient evidence to prove fraud, claiming that the use of investor capital was disclosed and that alternative income metrics justified the distributions. It also attempted to distance themselves from the marketing materials and alleged that the performance guarantees were legitimate. Schneider argued he enforced a compliance process, and Gentile asserted limited involvement in marketing.
The defense alleged prosecutorial misconduct, claiming the government elicited perjury, withheld evidence, and made improper arguments during closing statements. It also challenged the jury instructions.
Kovner dismissed these arguments, however, finding no basis for the claims of prosecutorial misconduct and upholding the jury instructions. The court concluded that the government presented substantial evidence to support the jury’s verdict and that the defendants’ actions constituted fraud.
In her memorandum order, Kovner emphasized that the evidence demonstrated the defendants misrepresented the source of funds and acted with intent to defraud investors. The court found no grounds for acquittal, a new trial, or dismissal of the indictment, affirming the jury’s August 2024 decision.
Gentile and Schneider now face sentencing, with the possibility of significant prison terms.
Related, in November 2024, FINRA announced that it has censured and fined Concorde Investment Services LLC, a Michigan-based registered investment adviser, broker-dealer, and insurance firm for failing to reasonably supervise recommendations made to six retail customers to purchase alternative investments related to GPB Capital Holdings LLC from 2015 to 2018. All six customers had conservative or moderate risk tolerances, and the recommendations were unsuitable for those customers in light of the substantial risks of the GPB Capital limited partnership interests.
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