SEC Wants Court-Appointed External Monitor to Protect GPB Capital Investors

From the Desk of Jim Eccleston at Eccleston Law LLC:

After charging GPB Capital executives with fraud, The Securities Exchange Commission (SEC) wants an external monitor to govern GPB Capital actions. The SEC asked a federal judge to put an outsider in charge of the business to protect GPB Capital investors and prevent any further misconduct.

GPB Capital's founder and former chief executive and other GPB associates were arrested on criminal and conspiracy charges last week in connection with a Ponzi-like scheme to deceive nearly 17,000 investors in four GPB funds, including two that invested in auto dealerships. At least eight states have initiated proceedings against GPB Capital either in local courts or through administrative actions. New York's Attorney General has demanded about $700 million in restitution for investors.

The SEC believes a monitor is needed to protect investors' assets and prevent the New York-based private equity firm from disposing of assets that GPB can use to recover investors' capital. An independent monitor would assure investors and the public that their interests are protected. The SEC noted in its filing , "the principal source for potential investor recovery is revenue generated by the automobile dealerships owned by GPB Capital." The dealerships have contractual relationships with lenders and manufacturers at risk of termination because of the arrest of GPB Capital founders' arrest. The SEC noted GPB Capital sold a dozen dealerships last year. The SEC is concerned that car manufacturers may terminate GPB Capital's dealerships that sell their brands, thus reducing the firm's revenue and assets values. 

The SEC wants to install an industry veteran to control the reins on asset sales, extensions of credit, changes in strategy, and executive compensation. The recommended industry veteran has many years of experience in dealing with automakers and their dealers. The external monitor would decide whether to retain management-level employees, resume investor distributions or seek bankruptcy protection for the firm. The monitor would have 60 days to determine whether to pursue a receiver or bankruptcy for GPB Capital.

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