DAI Securities, LLC agreed to pay a $50,000 fine as part of a settlement with the Financial Industry Regulatory Authority (FINRA).
Between May 14, 2018 and June 29, 2018, DAI Securities negligently failed to notify four investors in an offering related to GPB Capital Holdings, LLC that the issuer failed to timely make required filings with the Securities and Exchange Commission, including the filing of audited financial statements .
GPB Capital is a New York-based alternative asset management firm founded in 2013. GPB Capital serves as a general partner for limited partnerships formed to acquire income-producing companies. From 2013 to 2018, GPB Capital launched several limited partnerships, each focused on acquiring controlling interests in certain private sector companies.
GPB Capital’s limited partnerships included GPB Automotive Portfolio, LP, which was formed in 2013 to acquire and operate automotive dealerships;
On April 27, 2018, GPB Capital released what it described as material updates to the audited financial statements for certain of its limited partnerships, including the Automotive Portfolio. The letters, which were sent to broker-dealers who sold investments related to GPB Capital, including DAI Securities, said GPB Capital was in the process of registering certain classes of securities issued by some of the limited partnerships, including the Automotive Portfolio , with the SEC.
As part of this process, Automotive Portfolio was required to submit audited financial statements. The letters further stated that the delivery of the Automotive Portfolio’s audited financial statements (which were to be filed by April 30, 2018) would be delayed pending the completion of the forensic audit. Specifically, GPB Capital disclosed that it and its auditors “decided that it would be prudent to hire a third party firm to complete a forensic audit in order to attempt to [the former partner’s] counterclaims and other claims to rest.”
The offering documents for the Automotive Portfolio were not amended in time to disclose that the partnership would be late filing its audited financial statements with the SEC.
While DAI Securities received the letter from GPB Capital notifying them of the delays and GPB Capital’s stated intention to complete a forensic audit, DAI Securities sold limited partnership shares in the Automotive Portfolio to four clients following this announcement.
The principal value of these four sales, which occurred between May 14, 2018 and June 29, 2018, totaled $300,000. DAI Securities received total commissions of $25,500 from these sales.
In connection with these four sales, however, DAI Securities did not inform clients that Automotive Portfolio had not timely filed its audited financial statements with the SEC or the reasons for the delay. The delay in submitting audited financial statements and the reasons for it were material information that should have been disclosed.
By negligently omitting material facts, DAI Securities violated FINRA Rule 2010.
In addition to the $50,000 fine, the company agreed to a reprimand and partial restitution of $25,500.