The Financial Industry Regulatory Authority (Finra) has fined and sanctioned the Sanctuary Wealth Management broker for selling private equity funds run by an alternative manager accused of running an alleged Ponzi-style fraud scheme.
Sanctuary Securities was hit with a reprimand and a $60,000 fine for “negligently failing” to tell a group of eight investors in two New York-based GPB Capital funds that the manager of alternative assets had not produced audited financial statements for the funds, according to a letter from Finra made public on September 2.
The two private equity funds in question were the GPB Automotive Portfolio and the GPB Holdings II, which respectively invested in profitable car dealerships and IT services, according to Finra.
The negligence allegations relate to Sanctuary’s predecessor company, David A. Noyes & Co., which the company acquired in 2018.
“The David A. Noyes brand no longer exists and no former members of the management team are currently employed by Sanctuary Wealth. We are pleased to have resolved this prior issue,’ a Sanctuary spokesperson said in a statement emailed to Citywire.
Last year, the US Department of Justice (DOJ) arrested and charged GPB chief executive David Gentile and two others with securities fraud, wire fraud and conspiracy related to the two private equity funds.
Federal prosecutors allege GPB Capital engaged in a year-long scheme to defraud investors of $1.8 billion by paying distributions of its funds, including GPB Holdings II and GPB Automotive, with the capital of the investors.
According to Finra, Sanctuary sold four stakes in GPB Automotive and GPB Holdings II in June 2018, raising more than $600,000, earning Sanctuary’s brokerage arm $48,000 in commission.
The watchdog added that the two funds, which were sold to a number of brokers, raised more than $1 billion from investors between July 2013 and June 2018.
Sanctuary has accepted and consented to the Market Watchdog’s conclusion in its Acceptance and Consent Waiver Letter in which it neither admitted nor denied them. The company also agreed to pay a restitution fee of $48,000 plus interest.
Behind the fraud
Prosecutors allege that beginning in 2015, Gentile, former GPB managing partner Jeffrey Schneider and Ascendent Capital CEO Jeffrey Lash – whose firm marketed funds to RIAs and brokerage firms – began making material misrepresentations and omissions regarding the sources of funds he used to pay investors. in the two private equity funds, the income generated by the interests in their portfolios and the value of the investments he had made.
“As alleged, the defendants misrepresented the holdings of GPB Capital through deceptive marketing practices, enticing investors with promises of monthly distributions which would be covered by funds from the investments and not drawn from the underlying invested capital,” said said William Sweeney, assistant manager in charge. for the FBI’s New York field office in February 2021 when the DOJ unsealed its indictment.
“As we claim today, however, it was all a lie. In truth, a significant portion of GPB’s distributions were paid directly from investor funds.
If found guilty, each man could serve a prison term of up to 20 years.
The SEC has filed a parallel civil lawsuit against GPB Capital which is still ongoing.