Rosenberg accused the company’s largest investor of financial misconduct in a lawsuit he filed in July.
After accusing his largest investor of financial misconduct, David Rosenberg has been fired as chief executive of Prime Automotive Group, a company built by Rosenberg and his colorful father, the late Ira Rosenberg.
David Rosenberg was the chief executive of one of the nation’s largest auto dealership networks, with nine locations in Maine. In July, he filed a lawsuit in a Massachusetts superior court that accuses GPB Capital Holdings, which has a majority stake in Prime Automotive, of running a Ponzi scheme by using new investment money to pay returns to existing investors.
The lawsuit was triggered when GPB Capital failed to pay Rosenberg $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 dealerships.
Rosenberg’s dismissal was mentioned in a GPB Capital news release announcing that Kevin Westfall, an executive with 40 years in the automotive industry and chairman of GPB Capital’s automotive strategy division, had been appointed interim chief executive, and that Rosenberg had been “relieved of his duties.”
In a statement, Rosenberg’s attorney, Jack Pirozzolo of Sidley Austin in Boston, said the action “represents further retaliatory action taken against David Rosenberg for reporting evidence of financial misconduct at GPB. Company leadership not only ignored Mr. Rosenberg’s initial call for corrective steps within GPB’s legacy auto dealership operations, they attempted to silence him and other members of the Prime Automotive Group team when misconduct was discovered. Now they have wrongfully terminated Mr. Rosenberg for acting responsibly and ethically and in the best interests of the dealerships and GPB investors, and for asserting his rights to certain payments that GPB was contractually obligated to make to him by July 1 – but which Mr. Rosenberg has not received to date.”
Prime Automotive’s majority owner, GPB Capital, 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 investment firm’s offices in late February. GPB Capital also said it was facing inquiries by the U.S. Securities and Exchange Commission.
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.
Prime Automotive represents 56 dealerships organized into five regional platforms across eight states. It is expected to generate about $3.2 billion in revenue in 2019.
After building and then selling a network of auto dealerships in Massachusetts, Ira Rosenberg retired, but it didn’t last. He came out of retirement in Maine in the mid-2000s by purchasing three car dealerships and forming Prime Automotive’s predecessor, Prime Motor Group. His son, David, had acquired a separate car dealership network, Clair Auto Group, which operated nine dealerships in Maine, Massachusetts and New Hampshire. Later, the father and son would merge their companies into one, with David acting as CEO and his father as the key adviser.
Ira Rosenberg figured centrally in the company’s marketing efforts, appearing as a wisecracking salesman in many TV and radio commercials. At age 80, he retired again in October 2017 and died the following March.
In 2017, David Rosenberg sold a majority stake in the dealership group to GPB Capital for $235 million. GPB Capital began investing in auto dealerships in 2013, and by 2017 it already owned car dealerships in Texas, Pennsylvania, New York, New Jersey and Connecticut. The subsidiary set up for the dealerships, GPB Prime Automotive Group, is the 11th-largest dealership group in the country, according to Automotive News rankings.
After purchasing its majority stake in Rosenberg’s dealerships, GPB Capital asked Rosenberg to run GPB Prime. But Rosenberg has said the heads of the investment firm tried to push him out earlier this year after he alleged that the investment group was making moves to inflate dealership values and profits beyond what they really were. He also accused GPB Capital of creating fake contracts and adopting deals that benefited the heads of the investment fund rather than investors.
In 2018, the lawsuit alleges, an accounting firm hired to audit GPB Capital’s books resigned and said it was withdrawing its prior opinions that had given the investment firm a clean bill of financial health for 2015 and 2016. The suit said the accounting firm withdrew because it had found “numerous undisclosed and inappropriate” transactions to benefit top GPB Capital executives. Rosenberg alleges that GPB Capital officials lied to brokers about the reasons for the accounting firm’s resignation.
Attempts to reach GPB’s New York attorney for comment Wednesday were unsuccessful. But the attorney, Tab K. Rosenfeld, told the Boston Globe in July that the lawsuit was a “simple contractual issue between Mr. Rosenberg and the defendants” over the remaining payments owed to Rosenberg for his stake in the dealership fund. “The remaining allegations are inflammatory and not relevant to the action, and the company intends to defend the lawsuit on the merits,” he said.
Rosenberg does not appear to be sitting still after his ouster from the dealership chain. On Monday, Saco dealership owner Mark Galos announced that Rosenberg and a business partner have purchased Frank Galos Chevrolet and Cadillac, founded by Galos’ father.
Staff Writer Edward D. Murphy contributed to this report.
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