GPB "not a Ponzi!" defense attorney claims

After a lengthy but intense seven-week trial, the attorney for David Gentile, the former CEO of GPB Capital Holdings who is facing securities fraud and wire fraud charges, on Monday attacked the federal prosecutors bringing the charges against his client.

The attorney, Matthew Menchel, during the closing arguments in federal court in downtown Brooklyn claimed that prosecutors had been overzealous in their charges against Gentile and Jeff Schneider, the former broker-dealer chief in charge of distribution of the high-risk private placements to dozens of other firms.

GPB investors, who have not seen distributions, think dividends, from their limited partnerships since 2018, received real value from their investments, claimed Menchel, a former federal prosecutor who is now a lawyer with Kobre & Kim, in rebuttal to the closing argument of the federal prosecutor.

"This is not a Ponzi scheme," Menchel said to the packed court room, filled with family and friends of the defendants. "This is not Bernie Madoff. That is not what happened here."

Government witnesses, including former senior executives at GPB, which launched in 2013 and primarily invested in auto dealerships and trash hauling businesses, changed their stories and “pivoted” to fit prosecutors’ claims, while the three GPB private funds at the focus of the trial bought businesses that generated significant revenue, Menchel said.

Federal prosecutors alleged that Gentile and Schneider allegedly used phony, back-dated documents and paid distributions, or dividends, to GPB investors using their own money, rather than coming clean and admitting that the performance of GPB funds was not as steady as it appeared.

In his defense of Gentile, Menchel disagreed with the government's portrayal of distributions in such private investments. One benefit of the private funds just as or more important to investors than distributions was the windfall to be gained from a potential sale of the GPB funds, he said.

The idea that investors and broker-dealers did not know there could be a return of clients' capital "was laughable," Menchel said, referring to disclosure in fund documents addressing the issue.

Menchel also tried to discredit government witnesses, including GPB's former chief financial officer Bill Jacoby. "Almost every word out his mouth is a lie," Menchel said.

The trial is scheduled to resume on Tuesday afternoon, with closing arguments finishing Wednesday, when the jury will begin deliberating.

When a reporter asked Gentile Monday afternoon outside the courtroom how he felt the trial was going, the former star accountant from Long Island declined to comment. Gentile and Schneider did not testify in their defense during June or July, although there was some speculation by watchers of the trial that Gentile would take the stand last week. In the end, it didn't happen.

After a three and a half hour summation and review of evidence, Jessica Weigel, assistant U.S. attorney for the eastern district of New York, said the defendants lied to investors to get rich. "David Gentile and Jeff Schneider are guilty as charged," she said.

Founded in 2013, GPB Capital saw incredible growth selling its high risk private placements through dozens of independent broker-dealers and five years later had raised $1.8 billion from wealthy clients looking for yield in a decade ago when interest rates were next to zero.

The firm had more than a half-dozen funds and targeted a steady 8% annual return to investors. Led by Gentile and broker-dealer chief Schneider, GPB first started ringing alarm bells six years ago, when it came to light that the company and its largest funds had failed to make timely required filings, including audited financial statements, with the Securities and Exchange Commission.

In February 2019, the FBI raided GPB offices in Manhattan. Two year later, the Justice Department, along with the SEC charged Gentile, Schneider and another senior executive, Jeffrey Lash with a number of fraud charges, including creating a Ponzi-like scheme and securities fraud, wire fraud and conspiracy.

Lash pleaded guilty last year and testified this month against his former partners, hoping for a lenient sentence.