Listen to this articleAfter an eight-week trial, a Long Island man was convicted on Thursday in federal court in Brooklyn in connection to a $1 billion fraud scheme, officials said. A Texas man was also convicted.
David Gentile, of Manhasset, and owner and CEO of GPB Capital Holdings and, Jeffry Schneider, the owner and CEO of Ascendant Capital, were convicted on all counts of an indictment charging them with conspiracy to commit securities fraud, conspiracy to commit wire fraud, and securities fraud. Gentile was also convicted on two counts of wire fraud, according to Breon Peace, the U.S. Attorney for the Eastern District of New York.
The charges related to a years-long scheme to defraud more than 10,000 investors by misrepresenting the source of funds used to make monthly distribution payments and the amount of revenue generated by three of GPB’s investment funds. The defendants had raised more than $1 billion from investors, according to officials.
“The jury found that the defendants lied to investors about the health of their funds and the source of fund distribution payments, all while they were fraudulently making those distribution payments with investor capital to maintain the appearance of successful portfolio companies,” Peace said in a news release about the conviction. “This Office has a proud history of prosecuting fraudsters who abuse the trust of investors, and we will continue to vigorously protect the integrity of the financial markets.”
Founded in 2013 by Gentile, GPB was a New York-based investment advisor registered with the SEC, according to officials. The firm served as the general partner of several investment funds that raised and invested capital in a private equity investment portfolio. GPB worked with Ascendant Capital, a marketing firm founded by Schneider, to market the GPB funds to investors. Gentile and Schneider worked closely together on the operation and marketing of GPB funds, receiving regular updates about the funds’ performance, according to officials.
Officials say that between August 2015 and December 2018, the defendants engaged in a scheme to defraud investors and prospects in several GPB funds through material misrepresentations and omissions. The two, both individually and through employees at Ascendant Capital, are alleged to have represented to investors that the funds would make a monthly distribution payment that would be fully covered from operations, meaning that the companies purchased by the funds would be sufficiently profitable for the payments to be made from the companies’ cash flow, without drawing from capital raised by investors.
But when the funds’ performance lagged, the defendants allegedly tried to disguise the shortfall with fraudulent, back-dated documents and paid investor distributions out of investor capital. Ultimately, investor capital was used to pay for a significant portion of the distributions made to investors, officials said. Gentile and Schneider were aware that the GPB Funds were underperforming and authorized the fraudulent distribution payments.
At sentencing, which is slated for Oct. 24, Gentile and Schneider each face up to 20 years in prison.