Madoff All Over Again? Whistleblower’s “Smoking Gun” Analysis of GPB Capital Scheme Was Contained in Files Indicted Ex-SEC Official Is Alleged to Have Spirited Away to GPB Capital; Law Firms Filing Class-Action Lawsuit in Texas to Recover Funds Stolen by GPB and Network of “Helpers.”
NEW YORK–(BUSINESS WIRE)–The whistleblower who uncovered connections to the Russian mob, outrageous conflicts of interest, and illicit funding sources in the course of her investigation into GPB Capital Holdings (GPB Capital) explained today at a national news conference how she reported it to market and federal regulators, and then learned that her analysis was likely turned over to the company by a now-indicted SEC official who took a job at GPB. At least $1.8 billion was run through GPB Capital, with most of the proceeds ending up in the pockets of principals, behind-the-scenes hidden partners, brokerage firms paid huge commissions, and a network of accountants. For more details see https://gpblawyer.com/.
Peiffer Wolf Carr and Kane (Peiffer Wolf) and Meyer Wilson, the two law firms representing both the whistleblower and multiple GPB investors, today detailed how they worked with the whistleblower as part of their full-scale investigation to expose GPB Capital as a Ponzi scheme.
Today, Peiffer Wolf and Meyer Wilson announced that they filed a new class action lawsuit in the United States District Court for the Western District of Texas on behalf of all investors who purchased interests in the various GPB funds. The class action lawsuit names GPB Capital CEO David Gentile, CFO William Jacoby, former CFO Minchung Kgil, its directors and partners, a series of limited partnerships (the GPB Funds, including those for automobiles, waste management and cold storage), the underwriters for the GPB Funds (Ascendant Capital, Ascendant Alternative Strategies, and Axiom Capital), auditors, the fund administrator, lawyers, and an array of dubious individuals, some with checkered pasts and others with connections to organized crime in Russia.
Whistleblower Toni Caiazzo Neff, a former NASD Regulation/FINRA examiner with more than 20 years of experience, first became aware of GPB Capital in 2016 when she was asked to conduct due diligence on the firm for her then-employer, Purshe Kaplan Sterling Investments Inc. (Purshe Kaplan). When Purshe Kaplan management pressured Ms. Caiazzo Neff to look the other way when it decided to sell GPB Capital despite her findings, Ms. Caiazzo Neff was fired for refusing to be silent. She reported the situation on a confidential basis to both FINRA and the U.S. Securities and Exchange Commission (SEC).
Joseph Peiffer, managing attorney, Peiffer Wolf, said: “The simple truth is GPB Capital was rotten to its core from day one. Behind the public-facing façade of GPB Capital and its funds, lurked a complex web of shady entities and individuals who propped up, facilitated, and financially benefitted, from every phase of the GPB Capital Ponzi scheme. It’s like an onion, where every time you peel a rotting layer off of the outer surface, you find another layer of rot underneath. In the case of GPB, each layer ultimately profited off of the unwary investors who put nearly $2 billion of their savings into GPB Capital.”
Whistleblower and financial examiner Toni Caiazzo Neff said: “It would be nice to think that Wall Street cleaned up its act after Bernie Madoff, but what I found in my research of GPB Capital was another massive scheme that was designed to strip money from investors all while appearing to be conducted by a legitimate Wall Street company. The truth is that GPB Capital hid behind a paper-thin veneer of respectability, which was easily pierced with routine due-diligence work. I am astonished that U.S. brokerage firms large and small allowed themselves to be blinded by big commissions and got into bed with GPB Capital.”
Jason Kane, partner, Peiffer Wolf, said: “We will not be intimidated, and we will not allow thugs to intimidate our clients. Ms. Caiazzo Neff is one brave individual who has done investors an immense public service by operating ethically and refusing to knuckle under to the forces of greed and graft.”
Courtney Werning, attorney, Meyer Wilson, said: “On the surface, GPB Capital is a classic Ponzi scheme. Investors were promised 8 percent returns guaranteed, and those purported returns were generated not from actual investment returns, but by tapping the capital investments of the next round of investors (or, in some cases, from the capital accounts of the investor itself, cannibalizing a particular investor’s own principal). GPB Capital was able to keep this enterprise afloat for several years, long enough to generate $1.8 billion in investment capital, a significant percentage of which was siphoned into the pockets of GPB Capital’s principals.”
According to the class-action lawsuit filed by Peiffer Wolf and Meyer Wilson, GPB investors were kept in the dark about the following:
- Russian crime connections. While the GPB Ponzi scheme formally began in 2013 the seeds of this fraud were sowed years before when David Gentile became involved with an Eastern European organized crime family headed by Michael Chernaya a/k/a Michael Cherney. Gentile’s relationship with Chernaya, his organization, and his family ultimately led to GPB’s first portfolio assets and GPB investor funds flowing to Chernaya’s organization, an organization that included David Gentile. Michael Chernaya’s ties to foreign crime syndicates, the mafia and Russian oligarchs are extensive and well-documented. He has been denied a visa by the United States. He has been barred from Bulgaria. Court documents reveal that although he is not in the United States, his two daughters, Rina and Diana Chernaya, live in Florida and have been the recipients of tens of millions of dollars from their father.
- Impossible financial promises. At the heart of GPB Capital’s deception was a simple claim—the GPB Funds return 8 percent annually to investors in the limited partnerships, kicking in only three months after an investor buys into the Funds. Indeed, the GPB Funds did pay 8 percent consistent annual returns—on paper. Each investor in the GPB Funds received an annual statement showing an 8 percent return, on top of their principal investment. On top of that, GPB Funds offered extraordinary sales commissions to the brokerage firms who marketed the limited partnerships to investors. Taken together, when an investor signed on the dotted line and put money into the GPB Funds, 20 percent or more of that money was immediately extracted to pay GPB, the underwriters, and brokerage firms. An investor was, in essence, down 20 percent or more from day one.
- Massive conflicts of interest. The principals behind the GPB Capital first put together entities to serve as underwriters for the GPB funds. Ascendant Capital, LLC/Ascendant Alternative Strategies, LLC (Ascendant) and Axiom Capital Management, Inc. Investors were not told that both entities were owned by Jeffry Schneider, the head of Ascendant, Mark Martino, the head of Axiom Capital Management and Gentile. This is a flagrant and outrageous conflict of interest, made worse by the fact that both Schneider and Martino have been subject to multiple disciplinary and legal proceedings related to their conduct in the securities space, proceedings that should have disqualified them from serving as the underwriters for the GPB Funds at all.
- Greed-blinded brokers. Blinded by sky-high commissions of 8 percent or more, brokers sold the limited partnership investments to investors and other class members, and the brokerage firms knew or should have known that the GPB Funds were fraudulent Ponzi schemes. The brokerage firms looked the other way in order to receive commissions that are completely out of line with industry norms, far beyond reasonable compensation. This extraordinary compensation arrangement was not disclosed to potential investors and provided the incentive for brokerages to not just look the other way, but actively promote the fraudulent investments.
- Auditors that papered over abuses. RSM US LLP and other auditors “papered over” GPB Capital’s malfeasance, issuing documents and audits that were at times blatantly false, and consistently misleading. Without these “helper” entities, GPB Capital and its principals would not have been able to keep the scheme afloat, and thus not able to extract proceeds from Plaintiff and other investors.
ABOUT THE FIRMS
Peiffer Wolf Carr & Kane, APLC is a national law firm with offices in New York, New Orleans, Cleveland, San Francisco, Los Angeles, Austin, and Missouri. https://gpblawyer.com/
Meyer Wilson, Co., is a national law firm with offices in Ohio, California, and Michigan. www.investorclaims.com
EDITOR’S NOTE: A streaming audio recording of the November 6th news event is available online at https://gpblawyer.com/.
Max Karlin, (703) 276-3255 or firstname.lastname@example.org.