Independent monitor Joe Gardemal, appointed by a federal judge to oversee GPB Capital Holdings and Prime Automotive Group of Westwood, Mass., will recommend over the next few months whether the alternative asset-management firm should remain under a monitor's oversight or be moved under the control of a receiver.
Whether GPB or its portfolio companies should file for bankruptcy also is on the table.
Gardemal's appointment, approved by U.S. District Court Chief Judge Margo Brodie last week in New York, quickly followed a Feb. 8 emergency request by the U.S. Securities and Exchange Commission. GPB later agreed to it.
The SEC — which filed a Feb. 4 complaint against GPB, two related companies, GPB CEO David Gentile and two associates alleging securities fraud — aims to protect the assets of GPB's 17,000 investors who it claims were misled in a "Ponzi-like scheme." Authorities say the investors contributed some $1.8 billion into GPB's investment funds.
Gentile and the associates were charged the same day by the U.S. Justice Department with conspiracy to commit wire fraud, conspiracy to commit securities fraud and securities fraud. Gentile resigned as GPB's CEO a day later. Several states have also brought actions against GPB and individual defendants.
Gentile was arraigned last week and pleaded not guilty to those charges as well as wire fraud.
SEC officials are worried that Prime — ranked by Automotive News as the 11th-largest dealership group in the country — could be forced into sales of its 40 stores at "fire-sale prices" and that automakers could seek to terminate Prime as a franchise holder.
"The principal source for potential investor recovery is revenue generated by the several dozen automobile dealerships owned by GPB Capital," the SEC said in a memorandum of law in support of its motion for the monitor last week.
"These dealerships have contractual relationships with lenders and manufacturers that are now at risk of termination because of, among other things, Gentile's arrest."
GPB spokeswoman Nancy Sterling said in a statement to Automotive News last week that a monitor's appointment "should have no impact whatsoever on any of the dealerships."
Gardemal is managing director for consulting firm Alvarez & Marsal Holdings in Washington, D.C. He is a certified public accountant and certified fraud examiner with more than 20 years of experience in auto industry-related valuations. He has worked with dealerships and automakers and as an SEC expert on dealerships.
Gardemal will be able to approve or disapprove corporate transactions and extensions of credit, according to the court order. He will report his recommendations to the court within 60 days, though he can ask for an extension. The monitor will remain in place until the court terminates his agreement.
Mark Johnson, president of dealership buy-sell firm MD Johnson Inc. in Enumclaw, Wash., said he believes the monitor is the first step toward a receiver being appointed to "wind up" operations of GPB and Prime's dealerships.
"The most likely outcome here is a receiver is appointed and they will try to do an organized liquidation of the funds and try to return as much money back to the investors as possible," said Johnson, who has worked as an adviser to receivers in cases involving dealerships.
Prime's dealerships and other assets would likely be sold, Johnson said.
GPB is under contract to sell five dealerships: stores representing Chevrolet and Subaru and three representing Toyota, Automotive News previously reported.
It's unclear what may happen to those deals under the monitor.
GPB sold at least 13 dealerships last year.
SEC officials have been concerned that GPB and Prime could sell dealerships, "which would deplete the assets that could be used to redeem investors," the commission said in its motion support filing last week.