By Jon Hill
Law360 (February 25, 2021, 9:15 PM EST) –
Embattled private equity firm GPB Capital Holdings sued its lender Signature Bank on Thursday for the return of more than $2 million in coronavirus relief funds and other loan money that the bank allegedly "wrongfully" took back after the firm and its founder were accused of taking part in a $1.8 billion fraud scheme.
In a complaint filed in New York state court, GPB Capital Holdings LLC claimed its employees' livelihoods have been imperiled by what it said was Signature's "unjustifiable" move earlier this month to reclaim the money, which included proceeds from a $1.3 million Paycheck Protection Program loan and more than $900,000 due on a 2018 term loan.
GPB and David Gentile, its founder and now-former CEO, were named in a U.S. Securities and Exchange Commission civil lawsuit filed on Feb. 4 that claimed they were involved in perpetrating a massive "Ponzi-like scheme" that raised about $1.8 billion. Gentile was also indicted by New York federal prosecutors on parallel charges announced the same day.
Gentile has resigned as GPB's CEO but has pled not guilty to the charges, while GPB said Thursday that it "denies any and all wrongdoing" claimed by the SEC.
The investment company, which has consented to a court-appointed monitor, said in its complaint that Signature acted rashly and baselessly by nevertheless withdrawing $2.2 million in loan proceeds from GPB's account just days after the cases were brought.
According to GPB, Signature explained at the time that the investment company was in default because it had been "indicted" by the government and thus could wind up unable to repay its loans. Given that it was Gentile rather than GPB itself that had been indicted, this justification was "demonstrably false;' the company said.
Signature later corrected itself, GPB said, but the bank's revised explanations were just as bogus because it cited factors including the SEC's lawsuit and, in the case of the PPP loan, an alleged failure to disclose illegal activity.
"Signature, without justification, assumed the allegations in the SEC complaint to be true even though GPB denies those allegations and they have yet to be tested or proved in any court in any respect;' the investment company said.
According to GPB, Signature's actions amounted to a rush to judgment and a breach of both the 2018 term loan as well as the PPP loan, which the investment company said it needs to keep running.
"GPB requires access to the loan proceeds to conduct its day-to-day operations and will suffer irreparable injury if the funds are not restored immediately;' the company said. "GPB therefore brings this action to recover the monies wrongfully taken and for an order enjoining Signature from persisting in its unlawful conduct."
The company's complaint seeks more than $2.2 million in damages, among other relief, and includes a request for an emergency court order directing Signature to give back the withdrawn loan proceeds.
"A cornerstone of our jurisprudence is that allegations are only allegations and we all understand that rights should not be abridged without any legal process or findings;' GPB counsel Joseph Pastore of Pastore & Dailey LLC said in a statement to Law360 on Thursday.
Representatives for Signature did not immediately return a request for comment on Thursday.
GPB is represented by Joseph M. Pastore 111 and Melissa Rose Mcclammy of Pastore & Dailey LLC.
Counsel information for Signature was not immediately available.
The case is GPB Capital Holdings LLC v. Signature Bank, case number not yet available, in the Supreme Court of the State of New York, County of New York.
--Editing by Adam LoBelia.