Car dealerships, an investment firm and an alleged $1.8 billion Ponzi scheme
David Rosenberg was looking at financials for GPB's Automotive Holdings when he spotted something fishy in the numbers. At the time he was CEO of the automotive division at GPB Capital Holdings, a New York alternative investment firm.
In 2017, Rosenberg and his father, Ira Rosenberg, sold GPB a majority interest in Prime Motor Group, an automotive empire the pair had built that included 20 car dealerships around New England. David joined GPB and Ira, then 80, retired.
David's discovery of irregularities in the financials — and his attempts to report them to GPB top executives — led to his firing. Federal prosecutors say the information he reported uncovered an alleged Ponzi scheme that bilked investors of almost $2 billion, according to court documents.
In February 2021, the Securities and Exchange Commission filed an enforcement action against two GPB executives and the CEO of Ascendant, an investment firm that worked in conjunction with and for GPB to recruit small investors, according to court documents.
Investors were guaranteed 8% annual returns and were assured the money would come from the dealerships' profits. But according to prosecutors GPB used money from late investors to pay earlier investors — and to pocket some of the money themselves.
David Gentile, GPB founder, owner and CEO, Jeffrey Lash, a managing partner of GPB from 2013 through early 2018, and Jeffrey Schneider, owner and CEO of Ascendant were indicted earlier this year on federal wire fraud, securities fraud and conspiracy charges. They’ve been accused of running a Ponzi scheme that’s estimated to involve up to $1.8 billion.
The new owners: Todd Copeland and Bryan Scarpellinni are partners in two dealerships that until recently were Prime Chevrolet and Prime Subaru in Hyannis.
Gentile of Long Island, New York, Lash of Naples, Florida, and Schneider of Austin, Texas, pleaded not guilty to the charges.
Auto dealerships in GPB’s Automotive Holdings LLC appeared to be profitable according to marketing materials used to persuade investors. In those materials, brokers from Ascendent and other firms touted an “8% target annual distribution, paid monthly, which has been fully covered with funds from operations since inception,” according to the lawsuit filed by the New York District Attorney's office.
That promised stream of money enticed about 17,000 investors, including 4,000 seniors, from 11 states to sink their savings into GPB funds.
If the billion-dollar Ponzi scheme accusation is true, it would rank be among the top ten in the county in U.S. history.
Rosenberg had a long history in the automobile industry
Prime Motor Group was Ira Rosenberg's second auto dealership company. He founded and grew Ira Motor Group over two decades, purchasing his first dealership in the Boston area in 1975. He sold the company and a short time later started Prime with David. The pair grew the company to20 car dealerships in the New England area before selling to GPB.
The two Rosenbergs had long, successful careers in the auto industry and established strong track records with a variety of manufacturers.
In early 2017, GPB approached Rosenberg about selling a controlling interest in Prime Motor Group. Rosenberg eventually agreed in September 2017 to a $235 million deal with GPB where he would retain a 23.75% ownership interest.
He wanted to diversify his family’s wealth and protect his wife and children, he said in a recent interview about why he sold to GPB. “Everything I owned was in the automotive industry,” he said.
2018 business news:Prime Motor Group purchases dealerships in Hanover, Hyannis
After the purchase closed Rosenberg was named CEO and president of the newly renamed Prime Automotive Group, which had more than 56 dealerships in eight states at one time and ranked 18th on Automotive News' list of the top 150 dealerships in the country.
The manufacturers were happy when Rosenberg was put at the helm of the dealerships because of his long history in the industry. Franchise contracts can be terminated if manufacturers don’t approve of the owner/operators and Rosenberg was a proven entity.
Rosenberg uncovers alleged financial misconduct
It was in his capacity as CEO that Rosenberg became familiar with the finances of the dealerships owned by GPB prior to his joining the ranks. Over time he recognized that GPB Capital had engaged in financial misconduct, according to a civil complaint he filed in Norfolk Superior Court in July 2019.
Rosenberg saw examples of inflated revenue reports, fabricated profits and kickbacks. Investor funds had been funneled into GPB principals' pockets. The evidence dated back to 2014, according to Rosenberg’s complaint.
Rosenberg has said he tried to have GPB address these issues, to no avail. He questioned misleading statements about audits, informed leadership that dealership valuations were inflated and incorrect. When he answered questions as part of an audit in 2019, he was threatened by GPB counsel, his lawsuit claims.
In June 2019, Rosenberg presented information to the Automile Parent Board of Managers, of which he was a member. He told them that because of the incomplete audit, car manufacturers could threaten to terminate their contracts. The Board of Managers took no action, according to court documents.
There were other warning signs that all was not well with GPB. Goodman and Nekvasil, P.A., an investment recovery law firm, lists a series of significant dates after GPB failed to provide audited financial statements in April 2018.
Funds from dealership operations never covered the promised 8% return. Instead, GPB is accused of using new investors’ capital contributions to pay prior investors' monthly distributions, according to court records from New York.
Investment distributions were suspended in late 2018 and all of the GPB funds plunged significantly in value. Investors didn't receive financial statements regarding their investments for years, according to the law firm.
Warning signs of financial irregularities
A timeline developed by Goodman and Nevaksil cites several significant developments. An auditor resigned in 2018 and GPB stopped accepting investor capital. The Massachusetts Division of Securities, the Financial Industry Regulatory Authority and the Securities and Exchange Commission launched investigations. Class action lawsuits were filed against GPB.
Rosenberg said he notified the Securities and Exchange Commission of his concerns in 2019 and a short time later GPB fired him in retaliation.
His termination raised the ire of the manufacturers. Relationships matter in the automotive manufacturer/dealer universe. According to Automotive News, an auto industry publication, Volkswagen, Toyota, Subaru and Audi were not happy with Rosenberg’s ouster. Some manufacturers claimed the move was a breach of contract and grounds to terminate franchises.
In February 2021, the SEC filed an enforcement action against Gentile, Lash and Schneider accusing them of running a $1.8 billion Ponzi scheme and violation of the whistleblower law for firing Rosenberg.
That same month, the states of New York and New Jersey filed lawsuits against GPB Capital Holdings for allegedly running a Ponzi scheme. The states of Alabama, Georgia, Illinois, Missouri, and South Carolina followed suit.
Charles Ponzi, the Boston area man for whom the scheme was named, bilked people out of an estimated $15 million between 1919 and 1920, according to Smithsonian Magazine. Bernie Madoff is at the top of the Ponzi scheme pyramid, having stolen $50 billion from thousands of investors, according to the magazine. GPB Holdings alleged fraud could exceed Florida lawyer Scott Rothstein’s 2009 $1.2 billion Ponzi scheme by $600 million.
Retirees lost their savings to GPB's alleged Ponzi scheme
Unfortunately, 180 Massachusetts investors were defrauded of more than $14 million, according to a lawsuit filed against GPB by Massachusetts Secretary of the Commonwealth William Galvin.
Retirees in Texas, Florida and Arizona have fallen prey to the alleged fraud. New York, Illinois, Alabama, Georgia, New Jersey, Missouri, and South Carolina have filed securities fraud lawsuits against GPB executives. More states may follow suit.
After Rosenberg blew the whistle on his bosses, GPB had to sell off its dealerships — including the former New England Prime Motor Group dealerships. The SEC put a monitor in place to ensure the company did it properly.
“They have to make sure they maximize the amount of money they get so investors get back as much of their investment as possible” Rosenberg said in a recent telephone interview from his Marblehead home.
Two former Prime Chevrolet and Subaru dealerships in Hyannis were recently purchased by Todd Copeland and Bryan Scarpellinni.
Rosenberg lost millions and hopes to build another automotive empire, starting from scratch, but with his reputation intact.
“The people that I blew the whistle on were criminally indicted, and I was fired for being a whistleblower,” he said.
Rosenberg said he doesn’t want to grow his business as big as his previous businesses, but he does want to do right by the people who worked with him in the past. He wants to show them loyalty and give them a career path in the industry, he said.
In late 2020, Rosenberg and business partner, Christopher Konovalchik, bought White River Junction Subaru in Vermont from GPB's Prime Automotive Group, according to an article in the Valley News. Konovalchik has been the general manager of the dealership when it belonged to Prime.
In June 2021, Rosenberg bought two dealerships in Somersworth, New Hampshire, with partners and brothers Rick and Mike Bickford, according to Automotive News. Rosenberg worked with them in the past and called them "good operators," according to a story in AutoBala, an automotive industry publication.
"The auto industry is the only industry I know," he said.
