Mass. auto dealer caught in messy fight with N.Y. investor
One of the largest auto dealers in Massachusetts has sued his co-owner and financial backer, claiming the firm engaged in “serious financial misconduct” and tried to push him out after he complained to the US Securities and Exchange Commission.
In a complaint filed in Norfolk Superior Court last Friday, David Rosenberg, chief executive of Prime Automotive Group, accused the New York investment firm GPB Capital Holdings of running a Ponzi-like scheme, in which it used money from investors to prop up the performance of auto dealerships it owns, as well as to finance payments to other investors.
The lawsuit alleged that GPB executives and attorneys “were engaged in extensive efforts to cover up the misconduct in order to lull the investors in the GPB funds into thinking that their investments were safe and that any losses were due to legitimate business events rather than their own misconduct.”
An attorney for GPB said the company is involved in a contract dispute with Rosenberg over payments for his remaining holdings and said the other complaints in the lawsuit are baseless.
“This is a simple contractual issue between Mr. Rosenberg and the defendants. The remaining allegations are inflammatory and not relevant to the action, and the company intends to defend the lawsuit on the merits,” GPB attorney Tab K. Rosenfeld said.
The New York firm specializes in investing in privately held businesses, particularly in the auto dealer and waste management industries, and says it has raised $1.5 billion and has 160 companies in its portfolios.
However, the firm has posted steep losses in its investment funds and missed deadlines to file financial statements, and it reportedly has been under intense scrutiny from federal authorities and investigators in multiple states.
Massachusetts Secretary of State William F. Galvin, who oversees the securities business in the state, is investigating some five dozen brokerage firms that persuaded clients to invest in GPB. News accounts also indicate other investigators are examining the company’s waste business. GPB has acknowledged some of the investigations, according to accounts in financial and automotive industry publications.
Rosenberg, son of the late Ira Motor Group founder Ira Rosenberg, sold a majority stake in Prime for $235 million to GPB in 2017. David Rosenberg said he also had an agreement in which GPB would buy out his remaining 23.75 percent ownership stake for about $23.6 million in four installments.
After being put in charge of all of GPB’s automotive dealerships, Rosenberg said in his lawsuit that he became aware of numerous irregularities within the investment firm. Those included using investor money to cover up shortcomings in some dealership operations, misrepresenting the value of other dealerships, and improper insider dealing.
GPB has been unable to provide financial statements to investors for the past two years, according to the lawsuit, and the firm’s previous auditor resigned last year without completing its 2017 audit. GPB also missed an April 30 deadline for filing financial statements with the SEC, according to a spokesperson for Galvin’s office.
In April, after weeks of publishing disclosures about GPB’s situation, Rosenberg said he exercised his right to the first of those payments, some $5.9 million, that was due July 1, the lawsuit states. One month later, Rosenberg said he told GPB’s new auditors about the alleged financial misconduct.
The lack of a completed audit of GPB’s investments, Rosenberg alleged, was having widening ramifications: The dealerships were in default with their loan covenants, and lenders and car manufacturers were threatening to withdraw from their business relationships, the lawsuit alleged.
Rosenberg said he received threatening letters from the investment firm’s lawyers, and said several times GPB took steps to replace him. He said he eventually he took his complaints to the SEC.
The SEC declined to comment.
When GPB failed to make the payment by July 1, Rosenberg filed suit to force the payment.
Rosenberg is the third GPB auto executive to get into a legal dispute with the company. It has been in a lengthy court action with a New York auto dealer, Patrick Dibre, whom it has accused of financial misconduct while running its automotive retail operations. Dibre has denied the allegations and said GPB has “defrauded investors through a Ponzi scheme and other wrongful acts and seek[s] to wrongfully place the blame on Dibre,” according to court records.
Another former GPB automotive manager, Jeffrey Lash, had sued the company, its chief executive, and Rosenberg late last year for “irreparably”hurting his reputation in the industry, but dropped the suit a month later.
Rosenberg began working in his father’s dealerships at an early age. In the late 1990s, the family sold its extensive auto holdings, and then started over, eventually building the Prime Motor brand. Now called Prime Automotive Group, it is the largest dealership in New England by sales, with some $3.29 billion in revenue in 2018, according to annual rankings published by Automotive News. It has 56 dealerships throughout the region, compared with 52 for Herb Chambers, the publication said.
Despite exercising the option to sell his remaining stake, Rosenberg has no immediate plans to leave the business he spent years building, his attorney said. Rosenberg also said the turmoil surrounding the ownership of his dealerships would not affect customers.
“Prime Automotive Group’s dealership operations will continue as normal, and David Rosenberg maintains full operational control of Prime’s 56 locations across the United States,” a spokesperson for Rosenberg said in a statement.