The chief executive of one of the nation’s largest auto dealer networks, with nine locations in Maine, is alleging that his largest investor has engaged in financial misconduct.

Prime Automotive Group CEO David Rosenberg – son of Ira Rosenberg, a colorful and longtime Maine auto dealer – filed a lawsuit in Massachusetts that, among other things, alleges the investor is running a Ponzi scheme by using new investment money to pay returns to existing investors.

Rosenberg filed the suit last week in Norfolk (Massachusetts) Superior Court. It was triggered, the lawsuit said, when GPB Capital failed to pay Rosenberg $5.9 million on July 1 as part of its buyout of Rosenberg’s stake in a fund that is behind the purchase of dozens of dealerships.

Rosenberg said GPB Capital withheld the payment in retaliation for his allegations of misconduct in the company’s financial operations. Rosenberg’s suit said he passed on those allegations to the Securities and Exchange Commission and the FBI. Automotive News reported that the FBI and officials from a New York City agency searched GPB Capital’s offices in February.

Attempts to reach GPB’s New York attorney for comment Friday were unsuccessful. But Tab K. Rosenfeld told the Boston Globe that the suit was a “simple contractual issue between Mr. Rosenberg and the defendants,” over the remaining payments owed to Rosenberg for his stake in the dealership fund. “The remaining allegations are inflammatory and not relevant to the action, and the company intends to defend the lawsuit on the merits,” he said.

Since 2006, Rosenberg ran Prime Motors, with 30 dealerships in Maine and Massachusetts, along with his father, Ira. The elder Rosenberg retired in October 2017 and died in March.

In 2017, David Rosenberg sold a majority stake in Prime Motors to GPB Capital for $235 million. GPB began investing in auto dealerships in 2013 and by 2017, it owned car dealerships in Houston, Pittsburgh, Syracuse and the New York-New Jersey-Connecticut area. The subsidiary set up for the dealerships, GPB Prime, is the 11th-largest dealership group in the country, according to Automotive News’ rankings.

After purchasing a majority stake in Rosenberg’s dealerships, GPB Capital asked Rosenberg to run GPB Prime Automotive Group. But Rosenberg said the heads of the investment firm earlier this year tried to push him out after he alleged that the investment group was making moves to inflate dealership values and profits beyond what they really were. He also accused GPB with creating fake contracts and adopting deals that benefited the heads of the investment fund rather than investors.

A year ago, the suit said, an accounting firm hired to audit the investment firm’s books resigned and said it was withdrawing its opinions that had given the firm a clean bill of financial health for 2015 and 2016. The suit said the accounting firm withdrew because it had found “numerous undisclosed and inappropriate” transactions to benefit top GPB Capital executives. Rosenberg alleges that GPB Capital officials lied to brokers about the reasons for the accounting firm’s resignation.

The suit said that Rosenberg demanded that GPB Capital officials correct their statements, but they refused to do so.

At a meeting in June of the top managers of GPB Prime, the entity that ran the dealerships, Rosenberg said that carmakers and lenders might end their relationships with the dealerships over the allegations. He further warned that dealerships had breached the rules on their loans and were at risk of losing funding because GPB Capital had not completed its audit, the suit said.

The lawsuit said GPB Capital responded to Rosenberg’s warnings by hiring an “asset manager” to take over operating the dealerships, but that Rosenberg stood his ground.

GPB Capital then decided to withhold the $5.9 million payment on July 1 in retaliation, the lawsuit said.

Rosenberg’s suit asks the court to order GPB Capital to make the payment, with interest, along with unspecified damages.

Calls to lawyers for Rosenberg were not returned Friday.


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