A couple of former private equity executives that were convicted on fraud charges last year have now been sentenced to prison time by a U.S. district court judge.
In August 2024, David Gentile, the former founder and CEO of New York-based investment advisory firm GPB Capital, and the former CEO of marketing firm Ascendant Capital, Jeffry Schneider, were convicted on counts of securities fraud, wire fraud and conspiracy, in connection with a scheme that defrauded investors to GPB’s private equity funds by misrepresenting the funds’ performance and the source of distributions that were paid to investors. The conviction followed an eight-week jury trial.
Among other things, the defendants “used fraudulent, back-dated ‘performance guarantees’ to artificially inflate the income” of a couple of GPB Capital’s funds. And, after fraudulently inflating their audited financial statements, the funds raised approximately US$1 billion from investors, U.S. authorities alleged.
Additionally, between August 2015 and December 2018, “the defendants also misrepresented the source of the monthly distributions paid to investors,” U.S. authorities alleged. While investors were told that monthly distributions would be paid from income generated by the funds’ portfolio companies, the funds actually used around US$100 million worth of investor capital to finance those distributions.
Now, U.S. district court judge Rachel Kovner has sentenced Gentile to seven years in prison, and Schneider to six years. Forfeiture and restitution penalties will be imposed at a later date, and another co-conspirator, Jeffrey Lash, who previously pleaded guilty to wire fraud, will also be sentenced in the future.
“The defendants built GPB Capital on a foundation of lies. They raised approximately US$1.6 billion from individual investors based on false promises of generating investment returns from the profits of portfolio companies, all while using investor capital to pay distributions and create a false appearance of success,” said Joseph Nocella Jr., U.S. attorney for the Eastern District of New York, in a release.
“For years, David Gentile and Jeffry Schneider wove a web of lies to steal more than one billion dollars from investors through empty promises of guaranteed profits and unlawfully rerouting funds to provide an illusion of success,” added Christopher Raia, assistant director in charge with the U.S. Federal Bureau of Investigation (FBI) in New York.
“The defendants abused their high-ranking positions within their company to exploit the trust of their investors and directly manipulate payments to perpetuate this scheme,” he said.
Last month, the U.S. district court also approved a plan to distribute funds obtained by GPB Capital’s court-ordered receiver to investors.
The firm was placed into receivership at the request of the U.S. Securities and Exchange Commission (SEC), which also filed a civil action against Gentile, Schneider and their firms, alleging securities law violations, and that they violated the SEC’s whistleblower rules. That complaint sought disgorgement of ill-gotten gains plus prejudgment interest and penalties.