A majority of the broker-dealers in the Advisor Group Inc. network are facing dozens of investor arbitration claims totaling $19.4 million stemming from investments in GPB Capital Holdings private placements, a series of auto dealership and waste management investments that have struggled in the past few years.
In the past week, four of the six Advisor Group broker-dealers reported to the Securities and Exchange Commission a total of 58 claims that were filed by clients with the Financial Industry Regulation Authority Inc. arbitration forum from July 2019 through the end of last year.
Customers are alleging that the Advisor Group firms were negligent in permitting their sales reps to solicit customer investments in GPB private placements given their purported excessive risk and unsuitability, according to the filings.
The customers also asserted claims for negligence, breach of contract, failure to supervise and breach of fiduciary duty, according to the firms.
The four firms, Triad Advisors, FSC Securities Corp., Royal Alliance Associates Inc. and SagePoint Financial Inc., made the disclosures in their annual audited financial statements, known as Focus Reports, which are filed by broker-dealers with the SEC.
Advisor Group has 10,100 financial advisers under its roof and $475 billion in client assets, according to the company’s website. Its broker-dealers are among the largest and most prominent to sell the GPB private placements. In February 2021, the Justice Department claimed GPB, which had raised $1.8 billion from investors since 2013, had been running a Ponzi-like scheme for years.
An Advisor Group spokesperson did not respond to a request for comment.
Most important to advisers who sold the high-commission private placements and investors who bought them, typically in $50,000 to $100,000 tranches, is the lack of clear and steady information regarding the valuations of the private placements and the halt of distributions, similar to dividends, from GPB funds that began in 2018.
When broker-dealers face such an onslaught of investor complaints over a specific product that’s under scrutiny, like GPB, it’s never clear, at least at first, if the firms involved will wind up winning or losing the claims and to what degree they may owe investors money. Arbitration litigation is costly and tedious, however, and sometimes reveals embarrassing breakdowns in firms’ due diligence and sales practices.
Last year, GPB cut ties to its founder, David Gentile, who is currently facing federal criminal charges in the matter, and hired a veteran attorney with a background in the auto business, Joseph T. Gardemal, to be its monitor.
Since then, the outlook has brightened somewhat for GPB investors. The company has sold assets, including a top auto dealership, Prime Automotive Group, which fetched $880 million in an all-cash deal struck in September. And in a recent notice to investors and financial advisers, GPB said it would look to wind down the partnership that owned Prime Automotive and eventually distribute proceeds to investors.
According to the filings with the SEC made on Feb. 25 and Feb. 28, Triad Advisors is dealing with 22 Finra arbitration investor complaints involving $4.4 million in investor funds, and FSC Securities Corp. is facing 10 claims and $6 million of investor money. Royal Alliance Associates Inc. is facing 13 customer claims involving $4.7 million, and SagePoint Financial Inc. has 13 customer claims totaling $4.3 million.
Andrew is half-human, half-gamer. He’s also a science fiction author writing for BleeBot.