Gentile, also charged by federal prosecutors with wire fraud, resigned from his position as CEO of GPB, an alternative asset-management firm, on Friday. Gentile was arraigned on Tuesday and pleaded not guilty to all counts, according to court records.
The SEC is worried that Prime's dealerships — which represent at least 70 percent of GPB's revenue — may be at risk for termination by manufacturers amid a change in control or that dealership sales could be forced. The commission also is concerned a liquidation of GPB assets "would likely result in fire-sale prices."
"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. "These dealerships have contractual relationships with lenders and manufacturers that are now at risk of termination because of, among other things, Gentile's arrest.
"In addition, GPB Capital, as it has recently done, can sell its dealerships to generate cash, and Gentile and his handpicked management team should not have unchecked authority over incoming cash that could be used to redeem investors."
Automotive News reported last week that GPB is under contract to sell five dealerships: a Chevrolet, Subaru and three Toyota stores.
"GPB Capital could at any time sell dealerships, which would deplete the assets that could be used to redeem investors," the SEC said in the memo.
GPB spokeswoman Nancy Sterling said in a statement to Automotive News that "the appointment of a monitor for GPB, which does not own the stores, should have no impact whatsoever on any of the dealerships."
GPB declined to make further comment on the SEC's motion.
This isn't the first time the SEC has requested a monitor oversee GPB Capital.
In July, the SEC "provided counsel for GPB Capital with a proposed monitor order," according to the SEC's memo. And after it filed its lawsuit last week, it again sought GPB's consent to appoint a monitor, but the parties independently didn't reach an agreement.
The SEC is asking a judge to approve Joe Gardemal, managing director for consulting firm Alvarez & Marsal Holdings in Washington, D.C., as the monitor. Gardemal has worked as a court-appointed expert in federal court, and as an accounting and valuation expert for the SEC and Justice Department, according to his firm. The SEC, in its filings, said Gardemal has more than 20 years of experience with valuations in the auto industry. He has worked with dealerships and manufacturers and has served as an SEC expert on dealerships, the regulators said.
If appointed by the court as a monitor, the SEC said Gardemal would submit to the court within 60 days his recommendation on whether the monitoring should be continued or converted to a receivership. Or he could recommend whether bankruptcy should be filed for one or more of the entities.
The Wall Street Journal on Tuesday reported on the SEC motion.
Prime Automotive of Westwood, Mass., with 40 dealerships in the Northeast, ranks No. 11 on Automotive News' list of the top 150 dealership groups based in the U.S., retailing 45,050 new vehicles in 2019.