DKR Wins Arbitration Award against Arete Wealth Management for GPB Loses
Dimond Kaplan & Rothstein is happy to share its recent arbitration win against Arete Wealth Management for the sale of risky private placements in GPB Automotive Portfolio, as reported by Investment News.
From the article:
The first investor arbitration claims involving the products have been decided over the past few months, but the claim against Arete Wealth Management appears to be the first substantial win for investors against a broker-dealer.
In a first, a broker-dealer that sold high-risk private placements managed by GPB Capital Holdings lost a $515,000 arbitration claim to customers that included all client legal fees, an unusual distinction in such claims. Arete Wealth Management was ordered to pay the award by three arbitrators operating under the brokerage industry’s Finra Dispute Resolution Services unit.
The first few investor arbitration claims involving broker-dealers’ sale of GPB private placements have been decided over the past few months. But the claim against Arete appears to be the first substantial win for investors against a broker-dealer that is up and running and open for business. “Arete Wealth does not believe this ruling was supported by the facts or the law,” a company spokesperson wrote in an email. “The vast majority of the award cited in this ruling is not allocated to the investors but instead to the claimants’ attorney fees. These attorney fees were permitted by a wrongly applied state law.”
The firm has 140 advisers in 35 offices and is based in Chicago, according to its website. The firm focuses on alternative investments. GPB raised $1.8 billion from investors starting in 2013 through sales of private partnerships, but it has not paid investors steady returns, called distributions, since 2018. Making matters worse, in 2019 the company, which has invested primarily in auto dealerships and trash hauling businesses, delivered a blow to investors when it reported significant declines in the values of its funds.
GPB and the 60 or so broker-dealers that sold the product have been sued by investors, in one lawsuit claiming the $1.8 billion investment manager was a Ponzi scheme. Executives and spokespeople for GPB have consistently claimed such claims are without merit and that the company is getting its financial matters in order. Broker-dealers have avoided the spotlight and settled some claims, attorneys have said.
Until this claim, according to attorneys. “We think it’s the first GPB award, and we pled it as a pure due diligence case — not about customer suitability,” said Jeffrey B. Kaplan, a partner at Dimond Kaplan & Rothstein Attorneys at Law and who represented the claimants, Howard Barron and related groups. “No customers, regardless of their net worth, should have ever been sold this product. We believe Arete may have misconstrued its due diligence obligation.”
According to the award, the claimants alleged that Arete Wealth “recommended and sold shares in a risky, high-commission, illiquid private placement, GPB Automotive Portfolio” and also charged Arete with negligence, negligent supervision and other charges standard in such disputes.
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