A New York-based alternative asset manager that raised US$1.7 billion from thousands of investors is being accused of operating a Ponzi scheme.

The U.S. Securities and Exchange Commission (SEC) charged GPB Capital and its owner and CEO, David Gentile, with an alleged scheme that involved funding the firm’s annual distributions to investors with money from new investors.

A former managing partner at GPB, Jeffrey Lash, GPB’s placement agent, Ascendant Capital, Ascendant Alternative Strategies LLC and Ascendant’s owner, Jeffry Schneider, have also been charged.

Since 2013, the firm has raised over US$1.7 billion for at least five limited partnership funds from approximately 17,000 retail investors, including approximately 4,000 seniors, the SEC said.

“Nearly all of the US$1.7 billion raised is still at risk,” the regulator said, noting that GPB Capital suspended all redemptions and distributions in 2018 and “according to a recent regulatory filing, GPB Capital’s assets are far below its obligations to the investors.”

According to the SEC’s filing, GPB Capital promised investors annual distributions of 8% based on returns from its portfolio companies.

“In reality, GPB Capital used investor funds” to help finance those distributions, the SEC alleged; adding “the fraudulent scheme continued for more than four years in part because GPB Capital kept investors in the dark about the limited partnership funds’ true financial condition.”

Gentile, Schneider, GPB Capital, Ascendant Capital and Ascendant Alternative Strategies are charged with violating securities laws. Lash, meanwhile, is charged with aiding and abetting some of those violations. GPB Capital is also accused of retaliating against a whistleblower.

The allegations have not been proven.

The SEC is seeking disgorgement of ill-gotten gains plus prejudgment interest and penalties in the case.

“As alleged in our complaint, the defendants told investors that they would be paid distributions from profits of the portfolio companies when, in reality, many of the payments were being made from the investors’ own funds,” said Richard Best, director of the SEC’s New York office, in a release.

“Whistleblower protections are a cornerstone of the SEC’s whistleblower program. The charges filed today reinforce the commission’s commitment to protecting whistleblowers from retaliation and attempts to stifle the free flow of information to the commission about possible securities law violations,” said Jane Norberg, chief of the SEC’s Office of the Whistleblower.

Gentile, Schneider and Lash are also facing criminal charges brought by the U.S. attorney’s office for the Eastern District of New York. Seven state regulators have also filed regulatory actions against them and their firms.