After wealth managers helped sell
MSC-BD, a brokerage owned by Austin, Texas-based investment banking firm Madison Street Capital, must pay 75-year-old widow Maria Albers an award of $221,000 in compensatory damages, attorney fees and costs in connection with her investments in limited partnerships managed by GPB Capital,
Her onetime broker, Robert Fehrman, faces at least one other pending client claim relating to GPB Capital, according to his FINRA BrokerCheck file, which contains 11 other disclosures. The case displays
After filing the cases last year, investigators warned that clients like Albers might lose their entire investments. A retired bank and insurance employee whose late husband once owned an autobody shop, she filed the claim against MSC-BD in September 2020. The Albers invested $65,500 in the GPB Automotive Portfolio LP out of a fixed annuity and another $9,000 from her IRA about six months after her spouse’s death, Oakes said in an email.
“They had a very limited investing background and limited assets,” Oakes said. “I think that it was clear to the panel that the Albers were not accredited investors and were not the type of investors that should have been in an alternative investment.”
The attorney for Madison Capital’s brokerage declined to comment, while representatives for the firm didn’t respond to requests for comment. Fehrman, who’s no longer affiliated with MSC-BD as of Jan. 24, didn’t respond to an email. Madison Capital provides M&A advisory and other corporate finance services such as raising capital for small- to mid-market businesses, as well as wealth preservation and tax planning,
Several hundreds of clients have targeted MSC-BD and bigger-name brokerages such as Hightower Securities and Advisor Group-owned firms Royal Alliance Associates and Triad Advisors with arbitration cases since
With GPB
“These claims are really strong. We still have a fair amount of them,” said Werning, noting that one of her firm’s clients who invested in GPB Automotive and the GPB Waste Management LP received an arbitration award of $170,000 in rescission and damages from Hightower’s brokerage in August. “Is any of the money from that sale going to trickle down to investors? We really don't know at this point. … Then the brokerage firms, they can be the ones stuck worrying whether GPB investors will ever see that money trickling down.”
Oakes has other clients that have filed arbitration claims relating to GPB as well, he said. In Albers’ case, Fehrman recommended that they withdraw money from their fixed annuity in 2014 and 2016 for the GPB Automotive LPs even though they incurred surrender fees of 10% for each transaction, according to the lawyer. The case accused MSC-BD of fraud, negligence, breach of contract and violations of Missouri’s Securities Act, among other claims.
“Through its agent, [MSC-BD] made unsuitable investment recommendations that were designed solely to generate maximum commissions, including investments in GPB Capital, a private placement,” according to the award document.
In its answer to the claims, MSC-BD denied the allegations.
While the clients sustained out-of-pocket losses of $63,000 on a net basis and MSC-BD argued that the damages were only $15,000 at the current appraised value of the LPs, Albers’ attorney advocated for damages of between $130,000 and $165,000 based on a benchmark tracking a well-managed account, Oakes said. The panel unanimously awarded $160,000 in compensatory damages, $53,000 in attorney fees under the state law and $8,000 in costs.
Another client filed a claim against Fehrman last July seeking $115,000 based on a “GPB Investment related claim, [with the] customer claiming that research was not conducted,”
Other than the GPB cases, his file includes three bankruptcy disclosures from last month, five regulatory disclosures, one employment separation after allegations in 1994, one client arbitration settlement and one award judgement. Many registered representatives involved with GPB and other fraud cases represent examples of
Besides the arbitration cases, the GPB saga could take another couple of years to wind its way through the courts. The firm has denied wrongdoing, and GPB founder David Gentile and alleged co-conspirators Jeffry Schneider and Jeffrey Lash pleaded not guilty to their criminal case in New York’s Eastern District. With the SEC case waiting on resolution of the criminal proceeding, that case is in pretrial motions, the Wall Street Journal
The next status conference in the criminal case is slated for Feb. 11, according to court records. In addition, Werning and other attorneys are representing clients in a class action case in the Western District of Texas.
“We're coming at this from two fronts. The class action is still proceeding nicely,” Werning said. “I can imagine that there are hundreds and hundreds of cases out there that are still pending.”
