A former top official at Saco-based Prime Automotive Group’s majority owner has been indicted on charges of obstructing a federal investigation into allegations that the New York private equity firm has been running a Ponzi scheme.
The indictment is more bad news for GPB Capital Holdings, which already has been accused of operating an investment scam by former Prime Automotive CEO David Rosenberg, whom the private equity firm fired in September without explanation.
Michael S. Cohn, GPB Capital managing director and chief compliance officer, has been removed from his position in the wake of the indictment, the company said. Cohn is accused of using his former position as an investigator at the U.S. Securities and Exchange Commission, a job he allegedly left just days before going to work for GPB Capital, to access sensitive information about the investigation and share it with GPB Capital employees.
An indictment dated Oct. 17 and signed by U.S. Attorney Richard Donoghue for the Eastern District of New York accuses Cohn of obstruction of justice, obtaining information from a government computer and unauthorized disclosure of confidential information.
“In or about and between September 2018 and October 2018, both dates being approximate and inclusive, within the Eastern District of New York and elsewhere, the defendant Michael Cohn did knowingly and intentionally access, and attempt to access, one or more computers without authorization and exceed authorized access, and thereby did obtain information from a department and agency of the United States, to wit: the SEC, for purposes of commercial advantage and private financial gain,” the indictment states.
According to Donoghue, Cohn left his job as a securities compliance examiner and industry specialist in the SEC’s enforcement division to work for GPB Capital in October 2018. But before he left, Cohn accessed data on SEC servers relating to its investigation into GPB Capital, including confidential information, privileged attorney-client documents and contacts with law enforcement and other regulatory agencies, Donoghue said in a news release issued Wednesday.
During discussions with GPB Capital personnel about obtaining a job there, Cohn advised them that he had inside information about the SEC’s investigation, and on several occasions he disclosed information to members of GPB Capital’s senior management about that investigation, the U.S. attorney said.
“The defendant abused the trust placed in him as an SEC employee, obstructing an active investigation,” Donoghue said in the release. “No one gets a pass for breaching the security of government computer networks and misusing sensitive and confidential information for their own benefit.”
Cohn faces a maximum prison sentence of up to 20 years on the obstruction of justice count, five years on the unauthorized computer access count and one year on the unauthorized computer disclosure count.
GPB Capital said in a prepared statement that it was “stunned” to learn Cohn had been indicted by a federal grand jury.
“Upon learning of the charges, GPB Capital immediately relieved Mr. Cohn of his duties as CCO, and replaced him with Aileen Doherty, a veteran chief compliance officer with more than 25 years of experience working with investment advisers and funds,” it said.
The private equity firm has been under investigation by state and federal authorities for several months for potential securities law violations. In April, Automotive News reported that the FBI and a New York City agency had searched the company’s offices in late February. GPB Capital also has acknowledged facing inquiries by the SEC.
In August, a group of GPB Capital investors filed a class action lawsuit against the investment firm for failure to provide timely and accurate financial statements, among other allegations.
GPB Capital made headlines again recently for firing Prime Automotive’s former CEO David Rosenberg just two months after Rosenberg filed a lawsuit alleging the private equity firm is running a Ponzi scheme by using new investment money to pay returns to existing investors. GPB Capital said its decision to fire Rosenberg was unrelated to the lawsuit, but it declined to state its reasons for firing him.
Among the allegations in Rosenberg’s lawsuit are that GPB Capital inflated dealership values and profits beyond what they really were, and that it created fake contracts and made deals that benefited the heads of the investment fund rather than investors. GPB Capital has denied any wrongdoing.
Rosenberg’s lawsuit was triggered when GPB Capital failed to pay him $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 auto dealerships. In 2017, Rosenberg sold a majority stake in Prime Automotive for $235 million to GPB Capital, which already owned dealerships in Texas, Pennsylvania, New York, New Jersey and Connecticut.
In September, a group of lawyers said GPB Capital Holdings is at the center of a coming “avalanche” of arbitration cases against brokers that pushed unsuitably risky investments in the company on retirees and other unsophisticated investors.
Prime Automotive represents 56 dealerships organized into five regional groups across eight states, including nine dealerships in Maine.
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