Prime Automotive Group CEO David Rosenberg said he hasn't been paid $5.9 million plus interest he's owed by the group's majority owner because he's been cooperating with authorities over the majority owner's alleged financial misdeeds.
Rosenberg filed a lawsuit July 19 in Massachusetts' Norfolk County Superior Court on behalf of himself and his family trusts, alleging that GPB Capital Holdings failed to make the July 1 payment as "an act of retaliation" against Rosenberg's efforts to address fraudulent activity at the New York alternative investment firm. The suit details several examples of the alleged impropriety, such as questionable transactions involving the principals and falsely inflating revenues.
"David Rosenberg appropriately fulfilled his responsibility to company stakeholders by reporting evidence of financial misconduct within GPB Capital's legacy auto dealership operations uncovered during the course of his executive duties," a spokesman for Rosenberg said in an emailed statement. "GPB leadership not only ignored Mr. Rosenberg's call for immediate corrective steps, they took retaliatory action and attempted to silence him and other members of his executive team."
Rosenberg said in court documents that he exercised his "put" option, which totals $23.6 million to be made in four payments of about $5.9 million, on April 1. His lawsuit said that in May, Rosenberg provided "truthful information" in response to questions posed by auditors for GPB, then received a threatening letter from the company's outside counsel. Around that same time, GPB took steps to replace Rosenberg, the lawsuit alleged.
The lawsuit said that on June 5, Rosenberg presented the financial misconduct allegations to GPB Capital and asked company leaders to take corrective action to preserve the value of the dealerships, but they refused to do so. Then, on June 11, Rosenberg notified GPB Capital that he provided information to the U.S. Securities and Exchange Commission on the firm's financial misconduct. In response, the company again sought to replace Rosenberg and refused to make the $5.9 million payment, Rosenberg's suit alleged.
"This is a simple contract issue between Mr. Rosenberg's entities and the company," said Tab Rosenfeld, an attorney for GPB. "The remaining allegations are inflammatory."
Asked about the allegations, Rosenfeld said it would be "inappropriate to address" them. "The allegations that he makes have nothing to do with his claim." Rosenfeld declined to discuss details of the claim but said GPB intends to defend itself on merit.
Rosenfeld acknowledged there have been regulatory investigations into GPB but said the company would not talk about ongoing legal matters.
GPB had confirmed that the FBI and a New York City agency searched its offices Feb. 28. The company has said it also faces inquiries by the SEC — the firm has described the probes as centering on potential violations of securities law. Massachusetts also is investigating 63 broker-dealers who worked with the company.
The SEC declined to comment. A spokeswoman for Massachusetts Secretary of the Commonwealth William Galvin said the investigation is ongoing.
Prime Automotive was formed through the combination of Rosenberg's Prime Motor Group and GPB Capital's Capstone Automotive Group in late 2017. It now has 56 dealerships in eight states, with Rosenberg overseeing them. GPB began investing in dealerships in 2013.
As CEO, Rosenberg and his management team found financial misconduct at the dealerships in the existing portfolio dating to at least 2014, the lawsuit alleged. The misconduct "took many forms" but generally related to fabricating revenue through fictitious contracts; self-dealing transactions on the part of principals, including GPB Capital founder and CEO David Gentile; and undisclosed transactions that benefited Jeffrey Lash, the outgoing head of the dealerships GPB had acquired before Rosenberg came on board.
Lash filed a lawsuit against GPB in New York federal court last year for at least $30 million, which he voluntarily withdrew a month later. Lash could not be reached for comment.
Prime Automotive rose to No. 11 on Automotive News' list of the top 150 dealership groups based in the U.S. ranked on 2018 new-vehicle retail sales. That was up two spots from a year earlier, when it surged 53 spots in the ranking in the wake of the Prime Motor-GPB deal. In 2018, Prime Automotive retailed 45,665 new vehicles and reported revenue of $3.29 billion.
Rosenberg grew up in the car business working alongside his father, Ira Rosenberg, who founded Ira Motor Group in Massachusetts. (Ira Rosenberg died March 28.) In 2000, the Rosenbergs sold Ira Motor Group to Group 1 Automotive Inc., of Houston, now the fourth-largest new-vehicle dealership group in the U.S.
David Rosenberg ran Group 1's platform in New England until 2006, when Abrams Capital founder David Abrams said he would sponsor a new dealership group led by Rosenberg. That group became Prime Motor. Abrams Capital sold its majority stake in Prime Motor to GPB in 2017.
"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," the statement from Rosenberg's spokesman said. "Customers, vendors and other business relationships should expect no impact or disruption to the high level of service and care they have come to expect from Prime's family-run businesses. As always, Prime's focus is on continuing to create an environment that engages employees, provides superior customer care and delivers strong business results."
Melissa Burden contributed to this report.
