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Award Date: June 8, 2023
Claimant Representative: AdvisorLaw
Respondent Firm: National Securities Corporation
Case Objective:
A Boca Raton-based advisor with over 35 years in the industry had seven customer disputes related to the same investment on his records. Hoping to clean up his record with the current FINRA expungement process, this advisor hired HLBS Law to take him through FINRA Dispute Resolution.
Case Summary:
In or around 2017, GPB Capital Holdings, LLC issued a private placement — GPB Automotive Portfolio, LP (“GPB Auto”). GPB Auto held strong assets, including land and auto dealerships. Prior to recommending GPB Auto to any of his customers, our advisor conducted extensive due diligence. He reviewed all of the offering materials and pertinent press releases, and he attended numerous due diligence events. Our advisor met with local representatives of GPB and even traveled to Austin, Texas for a due diligence event, where he met GPB Auto’s top management and gained in-depth knowledge of the company, its experience, and its investment criteria process. He reasonably relied on the information provided by GPB, as well as National Securities Corporation’s (“NSC’s”) due diligence. Each of the investors in GPB Auto met with our advisor’s manager, who reviewed a checklist with each individual, confirming their understanding of the product and its liquidity.
In or around late 2019, allegations were lodged against GPB, claiming that it was a Ponzi scheme and engaging in fraudulent practices. GPB Auto subsequently ceased paying dividends to its investors. Many of the customers who ultimately lodged claims against our advisor were friends, and the group sought out an attorney to recoup their investments. All customers who lodged the claims in question were represented by the same attorney, and seven separate claims were reported to our advisor’s records between 2019 and June of 2021. Then, around September of 2021, GPB Auto was sold for $880 million, as it had not in fact been a Ponzi scheme.
Result:
None of the underlying customers participated in the expungement hearing, and NSC participated and did not oppose our advisor’s expungement request. The FINRA Arbitrator reviewed the settlement documents for all seven of the claims. He read the rest of the documents that were submitted, as well, and he listened to the advisor’s testimony and AdvisorLaw’s arguments on behalf of our advisor.
The Arbitrator’s award notes that “Each of the Customers [ ] were accredited investors as defined by the regulatory authority as well as having some sophistication in investment strategy.” He stated that “each customer was provided private placement memoranda as well as other documentation explaining both the risk and return of the limited partnership.” The Arbitrator mentioned that our advisor had conducted his own due diligence, as well. He explained that “Problems arose when [GPB Auto] changed their dividend policy (originally paid monthly at a yield of 8% per annum) which created some panic among investors and led to allegations of the limited partnership being a ‘Ponzi scheme’ – which it was not.” He mentioned that the investors all received payouts when GPB Auto was later sold and explained that “What seems to be the fact here is that the investment was sound but due to a ‘panic mentality’ among investors, claims against both [our advisor and NSC] (among others) arose.”
The Arbitrator closed the matter, awarding our advisor expungement of all seven customer disputes — a feat so remarkable that it received a write-up in Financial Advisor IQ. Congratulations to our advisor and AdvisorLaw.