A toxic private equity fund complex that got several brokers into regulatory and legal trouble has now brought a major Georgian company to a premature end.
Kalos Capital, a suburban Atlanta company run by Daniel and Carol Wildermuth, filed for Chapter 11 protection in federal bankruptcy court on Monday. According to the bankruptcy filing, Kalos, which once had 100 registered producers, $28.5 million in revenue and 60 offices, was eventually overwhelmed by litigation related to GPB Capital Holdings LLC. The New York-based private equity firm sold private placements in its funds and Kalos representatives recommended them from 2014 to 2018. The former managing director of GPB was later arrested and the private equity firm been convicted of Ponzi-type activity by the SEC. Afterwards, lawyers came calling and many clients turned against the brokers who sold GPB’s private placements, claiming that these unregistered private placement notes were illiquid, opaque and unsuitable for most investors.
Struggling BPG funds have had a number of other brokers pinched by Finra this year: companies stung by Finra fines in the BPG debacle include National Securities Corporation, Capital Investment Group, Sanctuary Securities, Dempsey Lord Smith, BD4RIA and Généos Wealth Management. Massachusetts Commonwealth Secretary William Galvin said in 2018 that he would investigate 63 brokers who offered private placements in the business. A class action lawsuit filed in West Texas named 76 brokers for encouraging GPB’s questionable sales and statements.
Kalos Capital, based in Alpharetta, Georgia, asked the agency to end its registration earlier this month on Oct. 4, according to Finra records.
“To date, legal fees related to arbitrations, toll agreements and claims against Kalos have cost more than $9 million,” Carol Wildermuth said in a statement to the bankruptcy court.
Kalos had attempted to wrap the multiple arbitration filings against him in global mediation, using $2 million in insurance. That effort ended in January 2021, according to Carol Wildermuth’s statement, but even after that settlement, new complainants continued to emerge, she said. Kalos currently has 17 arbitrations pending against it regarding the GPB product, the bankruptcy statement said.
The Wildermuths, a husband and wife team, launched Kalos in 1997. Carol Wildermuth previously worked for private clients for Morgan Stanley and Lehman Brothers in the United States and Singapore. The 36-year-old industry veteran began his career with IDS/American Express.
Kalos began offering investments in GPB Capital Holdings LLC funds in August 2014, targeting accredited investors with a net worth of at least $1 million, according to the bankruptcy filing.
Private placement offers
GPB Capital Holdings, an SEC-registered adviser, manages private equity funds designed to buy controlling stakes in profitable, revenue-generating companies in industries such as car dealerships, IT services and technology companies. cold storage. The company, the SEC said, promised 8% back to shareholders on any revenue it was able to earn from these early-stage and mid-market businesses. The company had raised some $1.8 billion in capital for its funds since its inception in 2013 through January 2021, according to court documents.
In February 2021, the U.S. Attorney’s Office for the Eastern District of New York said it arrested David Gentile, the founder, owner, and CEO of GPB, and Jeffry Schneider, owner and CEO of Ascendant Capital LLC (the proxy placement of GPB Capital). He also arrested Jeffrey Lash, a former managing partner of GPB. The government accused the three of defrauding investors by misrepresenting the source of the funds’ monthly distribution payments, as well as misrepresenting the income generated by two of the funds: GPB Holdings LP and GPB Automotive Portfolio LP.