On February 4, the U.S. Securities and Exchange Commission (SEC) announced charges against investment adviser GPB Capital and individuals affiliated with the firm. The SEC charged the individuals, which include David Gentile, the owner and CEO of GPB Capital, with running a Ponzi-like scheme and charged GPB Capital with violating whistleblower protection laws.
According to the SEC, the defendants raised over $1.7 billion while defrauding over 17,000 retail investors. Gentile and Jeffry Schneider, the owner of GPB Capital’s placement agent Ascendant Capital, allegedly “lied to investors about the source of money used to make an 8% annualized distribution payment to investors.” According to the SEC, the defendants told investors that the distribution payments were entirely funded by “monies generated by GPB Capital’s portfolio companies” when, in fact, they were partially funded by investor money. This fraudulent scheme allegedly lasted for over four years. Additionally, the SEC alleges that GPB Capital and Ascendent Capital misled investors about millions of dollars in fees and other compensation that Gentile and Schneider received
Furthermore, the SEC charged GPB Capital with violating whistleblower protection provisions of the Dodd-Frank Act (DFA). According to the SEC, GPB Capital illegally included “language in termination and separation agreements that impeded individuals from coming forward to the SEC.” GPB Capital also allegedly retaliated against a known whistleblower.
“Whistleblower protections are a cornerstone of the SEC’s whistleblower program,” said Jane Norberg, Chief of the SEC’s Office of the Whistleblower. “The charges filed today reinforce the Commission’s commitment to protecting whistleblowers from retaliation and attempts to stifle the free flow of information to the Commission about possible securities law violations.”
Under the DFA, employers may not fire, demote, suspend, harass, or in any way discriminate against an employee who discloses possible securities violations to the SEC. Notably, recent rule changes to the SEC Whistleblower Program require whistleblowers to make disclosures in writing directly to the SEC in order to be covered by the anti-retaliation protections. This means employees who report violations internally and not to the SEC are not protected. This rule change follows the 2018 U.S. Supreme Court ruling in Digital Realty Trust v. Somers, which determined internal disclosures are not protected by the DFA.
SEC Rule 21F-17(a) prohibits employers from attempting to prevent individuals from contacting the SEC about potential securities violations. According to the rule, “[n]o person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement… with respect to such communications.” This rule is not limited to employer-employee relations but instead extends to any individual.
SEC Charges Investment Adviser and Others With Defrauding Over 17,000 Retail Investors