Financial advisers are beginning to experience the fallout from the steep decline in value and the current zero payout to investors plaguing the limited partnerships and private placements packaged by GPB Capital Holdings, an alternative asset manager, and the close to 60 broker-dealer that sold the products.
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. Last year, 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.
Just this summer, GPB reported a nearly $240 million drop in assets under management of its registered investment adviser. When asked for an explanation, the company gave no answer.
GPB has been sued by investors, in one lawsuit claiming the $1.8 billion investment manager was a Ponzi scheme.
Now, it appears that financial advisers are being dragged into the GPB mess. Luke Johnson, now working as a registered investment adviser with Prime Capital Investment Advisors, a $10.9 billion firm, has settled three investor arbitration claims alleging unsuitable investments in private placements and real estate investments and is facing 13 more.
The arbitration claims are overseen by the Financial Industry Regulatory Authority Inc. The most recent claim was filed against Johnson at the end of June, according to the BrokerCheck report. In total, those 13 claims are seeking almost $3.9 million in damages.
Scott Silver, a plaintiff’s attorney, has three pending arbitration complaints against Johnson on behalf of Johnson clients and said the complaints centered on GPB private placements and other nonliquid investments, including a real estate investment trust.
According to his BrokerCheck report, Johnson denied that the investments were unsuitable. In an interview on Wednesday, he said he was instructed by counsel not to comment about the claims.
“It’s GPB and more,” Silver said of the allegations of the clients. “It’s the general over concentration of investors’ portfolios in high risk, high commission alternative investments.”
Citing an email from Johnson to one of the clients, Silver said that the adviser late last year had asked the client if there were any way anyone could’ve known that GPB would have issues, or there would be concerns with the illiquid REIT?
Johnson was registered with the broker-dealer Coastal Equities Inc. from 2012 through the end of last year, when he was discharged from the firm, according to the BrokerCheck report. The allegations he faced were that he didn’t follow the firm’s policy by reporting in a timely manner a customer complaint and “inconsistently stating” a client’s liquid net worth on a document.
In the three settled claims, investors were seeking close to $890,000 in damages for alleged unsuitable investments, and Johnson paid $140,000 as part of the settlements to investors, according to BrokerCheck.
“GPB was the red flag but there was plenty of other garbage” in Johnson’s clients’ portfolios, Silver said.
Meanwhile, Johnson’s old firm, Coastal Equities, was recently facing an investigation by Finra over supervising a former broker and doing so in a way that created potential “omissions,” according to a recent filing from the firm with the Securities and Exchange Commission. Coastal Equities does not mention Luke Johnson in the filing.
A small broker-dealer, Coastal’s RIA, Coastal Investment Advisors, has $565.9 million in client assets.
The president of Coastal Equities, Charles Reiling, in an email said that the Finra matter had been resolved and did not involve Johnson.
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