Consent Monitorship Clauses Mandating Conversion to Receivership Are Enforceable Without Additional Equitable Findings

Introduction

In a nonprecedential but highly instructive summary order, the United States Court of Appeals for the Second Circuit affirmed the Eastern District of New York’s conversion of a court-ordered monitorship into a receivership over GPB Capital Holdings, LLC (GPB) following uncured violations of an Amended Monitor Order (AMO). The case arises from the Securities and Exchange Commission’s (SEC) civil enforcement action alleging a long-running fraud in which GPB raised over $1.7 billion from approximately 17,000 retail investors, including about 4,000 seniors.

The appellants—Ascendant Capital, LLC, its owner Jeffry Schneider, and GPB’s founder and majority owner David Gentile—challenged the receivership, arguing that the district court lacked authority to convert the monitorship absent independent findings such as a clear and substantial likelihood of success on the merits and clear necessity for a receiver. The Second Circuit rejected these arguments, holding that because GPB and Gentile consented to the AMO’s mandatory conversion clause, the district court acted within its equitable powers to enforce its own order without making additional, traditional receivership findings. The court further found no clear error in the district court’s factual determinations that the AMO was violated and that the violations were not cured within the contractually specified 10-business-day window.

Although issued as a summary order (and therefore not precedential under Second Circuit rules), the decision provides important guidance for SEC enforcement practice, corporate governance under judicial supervision, and the drafting and enforcement of consent monitorships that include automatic conversion triggers.

Summary of the Opinion

The Second Circuit affirmed the district court’s December 7, 2023 orders converting the monitorship to a receivership and imposing a litigation injunction (the latter not challenged on appeal). The panel (Judges Carney, Bianco, and Nardini) concluded:

The district court did not abuse its discretion in converting the monitorship into a receivership “pursuant to the terms of the [AMO]” after finding an uncured violation. The AMO’s Paragraph 21 used mandatory language: upon an uncured violation “the Monitorship shall convert to a receivership.”
Because GPB and Gentile consented to the AMO, the court was not required to make additional determinations (such as likelihood of success on the merits or clear necessity) before ordering conversion. The district court nonetheless made extensive supporting findings, including imminent risk of asset dissipation, credibility concerns, inadequacy of legal remedies, and a favorable balance of harms for investors.
The district court did not clearly err in finding the AMO was violated when Gentile appointed new managers and amended GPB’s operating agreement (including material compensation changes) without prior Monitor approval, and that the violation was not cured within the 10-business-day period after notice.
Given the court’s resolution on the merits, the appellate stay previously entered was lifted and vacated.

Background

GPB is an asset management firm that raised more than $1.7 billion since 2013. After the SEC filed its civil complaint in February 2021 alleging misuse of investor funds and financial statement manipulation, the district court—on consent—appointed Joseph T. Gardemal III as an independent monitor. The court later entered the AMO, which, among other things, required Monitor approval for:

Any retention of management-level professionals; and
Any material changes to executive, affiliate, or related-party compensation.

Critically, Paragraphs 20–21 of the AMO provided that a material, uncured violation—after Monitor notice and a 10-business-day cure opportunity—would, “upon motion of the SEC resulting in a Court Order,” mandate conversion of the monitorship into a receivership.

In May 2022, while a related criminal case was pending (the civil action itself was stayed except for monitorship matters), Gentile used his 99% ownership to appoint three new managers and to amend GPB’s operating agreement, approving compensation up to $400,000 per manager annually and expanding his own unilateral amendment powers. The Monitor notified GPB and Gentile that these actions violated the AMO because they were taken without prior Monitor approval. The new managers did not resign, the amendments were not withdrawn within the 10-day cure period, and the appointees continued to assert authority thereafter.

The SEC, supported by the Monitor and by GPB itself, moved to convert the monitorship into a receivership and to impose a litigation injunction to consolidate claims. Magistrate Judge Scanlon recommended granting the SEC’s motion. The district court (Judge Brodie) adopted the recommendation and entered an order establishing a receivership over GPB and an injunction. Schneider, Ascendant Capital, and Gentile appealed the receivership order and obtained a stay pending appeal. The SEC later moved to lift the stay.

Analysis

Precedents Cited and Their Influence

SEC v. American Board of Trade, Inc., 830 F.2d 431 (2d Cir. 1987): Reinforces the broad equitable authority of district courts to appoint receivers to prevent dissipation of assets and to conserve the estate pending further court action. This provides the traditional backdrop for receiverships in SEC enforcement.
SEC v. Manor Nursing Centers, Inc., 458 F.2d 1082 (2d Cir. 1972), and SEC v. Byers, 609 F.3d 87 (2d Cir. 2010): Confirm that courts may appoint receivers as part of their expansive equitable powers to remedy securities law violations—even in the absence of explicit statutory authorization. These cases support the availability of receiverships in securities enforcement generally.
15 U.S.C. § 78u(d)(5): The Exchange Act’s equitable-relief provision authorizes courts to grant “any equitable relief that may be appropriate or necessary for the benefit of investors,” supplying a statutory foundation for receiverships in SEC cases.
In re Tronox Inc., 855 F.3d 84 (2d Cir. 2017): Highlights the broad power of courts to enforce their own orders and to take reasonable steps to secure compliance. Tronox supports conversion as an enforcement mechanism for a violated consent order.
BERGER v. HECKLER, 771 F.2d 1556 (2d Cir. 1985), and GELLER v. BRANIC INTERNATIONAL REALTY CORP., 212 F.3d 734 (2d Cir. 2000): Stand for the principle that parties who consent to stipulated relief cannot later contest its imposition by demanding traditional showings; courts have a duty to enforce approved stipulations unless enforcement would be manifestly unjust (see also SANCHEZ v. MAHER, 560 F.2d 1105 (2d Cir. 1977), and SINICROPI v. MILONE, 915 F.2d 66 (2d Cir. 1990)).
Naar v. I.J. Litwak & Co., 688 N.Y.S.2d 698 (2d Dep’t 1999), and CITIBANK, N.A. v. NYLAND (CF8) LTD., 839 F.2d 93 (2d Cir. 1988): Persuasive authority that even private agreements may mandate or strongly support appointment of a receiver upon specified conditions, without an additional necessity showing. The Second Circuit invoked these to analogize consent-monitor provisions to enforceable contractual triggers.
U.S. Bank Nat’l Ass’n v. Village at Lakeridge, LLC, 583 U.S. 387 (2018): Supplies the framework for reviewing mixed questions of law and fact—de novo if predominantly legal, and for clear error if predominantly factual. The panel applied clear-error review to the district court’s factual findings.
Dixon v. Von Blanckensee, 994 F.3d 95 (2d Cir. 2021): Confirms appellate courts may take judicial notice of certain non-record materials; the panel took notice that Gentile and Schneider were indicted and later convicted in the related criminal case, with Lash pleading guilty.
Li Hua Lin v. U.S. Department of Justice, 453 F.3d 99 (2d Cir. 2006): Cited in lifting the appellate stay in light of the merits disposition.

Collectively, these authorities underscore two pillars of the court’s approach: first, a district court’s expansive equitable authority in SEC cases to appoint receivers; and second, the enforceability of consent orders—interpreted under general contract principles—that include mandatory conversion provisions.

Legal Reasoning

The panel anchored its affirmance in the AMO’s text, consented to by GPB and Gentile and unopposed by other defendants. Paragraph 21 provided that upon a material, uncured violation and a motion by the SEC, the “Monitorship shall convert to a receivership.” As the court explained, when parties have consented to such relief, the district court may enforce it without making additional, traditional receivership findings (e.g., likelihood of success on the merits or clear necessity). This follows from longstanding principles governing enforcement of consent decrees and court-approved stipulations: parties are bound by stipulated relief, and courts have the duty and power to enforce those stipulations unless doing so would be manifestly unjust.

The court also emphasized that, even if such additional findings were required in a non-consent context, the district court had made robust alternative findings that would independently support the appointment of a receiver, including:

Imminent risk of asset dissipation or diminution in value that would harm investors;
Credibility concerns regarding Gentile’s sworn testimony and actions;
Adequacy concerns with legal remedies (e.g., amending the AMO or monetary sanctions); and
A balance of harms favoring the SEC, GPB, and investors over the burden to appellants.

The court thus affirmed on two complementary grounds: (1) mandatory enforcement of the AMO’s conversion clause as a matter of equitable enforcement of a consent order, and (2) a sufficient factual basis to appoint a receiver even under traditional equitable considerations.

Factual Determinations: Violation and Failure to Cure

The Second Circuit found no clear error in the district court’s factual determinations that:

Gentile violated the AMO by appointing new managers and amending GPB’s operating agreement (including material compensation and governance changes) without prior Monitor approval, despite the AMO’s express requirement for such approval; and
The violations were not cured within the 10-business-day period after the Monitor’s May 31, 2022 notice. Instead, the newly appointed managers continued to assert their authority beyond the cure window, and formal resignation or withdrawal occurred only much later (after the magistrate judge’s July 28, 2023 R&R).

Magistrate Judge Scanlon’s observation that Gentile’s actions created an “irremediable” fracture in GPB’s leadership without court intervention was credited. The court also noted that GPB itself supported conversion to receivership, reinforcing the conclusion that ongoing governance conflict threatened investor interests.

Standard of Review

The appointment of a receiver is reviewed for abuse of discretion, a deferential standard that respects the district court’s fact-finding and remedial choices in equity. Factual findings are reviewed for clear error, and mixed questions are reviewed under the framework articulated in Village at Lakeridge. Under these standards, the Second Circuit found the district court’s determinations well within the permissible range of decisions.

What the Court Did Not Decide

The panel explicitly did not resolve whether a “likelihood of success” and/or “clear necessity” showing is required for an SEC receivership when the appointment is not grounded in a consent order’s mandatory-conversion clause. The court affirmed on consent-enforcement grounds and found it unnecessary to decide the alternative statutory-equitable arguments. Practitioners should therefore note the open question: in a non-consent setting, what precise quantum of proof must the SEC make for a receivership in the Second Circuit?

The Contract-Law Lens on Consent Orders

The court observed that agreements incorporated into court orders are construed under general contract principles and that interpretation questions are ordinarily matters of state law. Citing Naar and Citibank v. Nyland, the panel highlighted that agreements can validly provide for the appointment of a receiver upon specified conditions, and that mandatory language (“shall”) will be enforced as written. This contract-law lens is what allowed the court to treat Paragraph 21 of the AMO as dispositive upon an uncured breach, without re-litigating the traditional receivership prerequisites.

Impact

On SEC Enforcement and Court-Supervised Remedies

Consent monitorship orders that include unambiguous, mandatory conversion triggers are enforceable as written upon an uncured breach. Agencies and courts can rely on such clauses to swiftly escalate to receivership without additional evidentiary showings in the face of post-order misconduct.
In parallel criminal-civil contexts, civil stays can—and often should—carve out monitorship and related supervision, allowing the court to protect investors and preserve assets while criminal proceedings are ongoing.

On Corporate Governance in Monitored or Receivership Contexts

Majority owners cannot invoke state-law governance rights (e.g., unilateral manager appointments or operating agreement amendments) to bypass federal court orders. Court-appointed monitorship regimes must be respected, and deviations will be enforced through equitable remedies.
Attempted governance maneuvers that undermine court-approved oversight (e.g., late-stage manager appointments with enhanced compensation) substantially increase the risk of receivership.

On Drafting and Negotiating Monitorship/Receivership Provisions

Precision matters. Using mandatory language (“shall convert”) in a cure-trigger clause positions the court to enforce conversion on breach without additional hearings or findings.
Defense counsel should scrutinize and, where appropriate, negotiate for discretionary language (“may apply for” or “may seek”), defined cure mechanisms, and safe harbors to avoid automatic, irreversible consequences for ambiguous or technical violations.
Define “management-level professional” and “material compensation changes” with specificity to minimize future disputes over the scope of Monitor approval.

On Litigation Management and Investor Protection

Receivership-linked litigation injunctions (not challenged here) consolidate claims and centralize control over assets, reducing the race-to-the-courthouse dynamic that can erode estate value and harm investors.
Courts will credit the considered views of court-appointed monitors, especially where monitorship duties were expressly carved out of a civil stay and supported by company management and the SEC.

Complex Concepts Simplified

Monitorship: A court-imposed oversight regime in which an independent monitor reviews, approves, or disapproves specified actions by a company to ensure compliance, asset preservation, and governance stability. Unlike a receiver, a monitor typically does not take operational control.
Receivership: An equitable remedy in which a court-appointed receiver takes control of the entity and its assets to preserve value, marshal assets, and manage or wind down operations for the benefit of stakeholders (here, investors). It is more intrusive than a monitorship.
Litigation Injunction: A court order that halts litigation against the receivership estate, consolidating claims within the receivership proceeding to prevent fragmented, value-eroding litigation across multiple fora.
Consent Order/Stipulation: A judicial order reflecting the parties’ agreement, enforceable like any court order. Once entered, courts have both the power and the duty to enforce it unless enforcement would be manifestly unjust.
Equitable Relief under § 78u(d)(5): The Exchange Act authorizes “any equitable relief” appropriate or necessary for investor benefit, giving courts flexibility to craft remedies like receiverships in SEC actions.
Cure Period: A contractual window (here, 10 business days after Monitor notice) during which a violating party may remedy a breach to avoid specified consequences (here, mandatory conversion to receivership).
Summary Order (Second Circuit): A nonprecedential decision that may be cited under FRAP 32.1 and Local Rule 32.1.1 with the “summary order” designation. It does not bind future panels but can be persuasive.

Open Questions and Unresolved Issues

Receivership Standards Without Consent: The panel did not decide whether, in the absence of a consent-based mandatory conversion clause, the SEC must show a clear and substantial likelihood of success and/or clear necessity for a receiver in the Second Circuit. District courts often rely on broad equitable powers in SEC cases, but the precise standard remains an open doctrinal question post-decision.
Scope of “Cure”: The decision underscores that equivocal or delayed steps will generally not satisfy a short contractual cure period. Future cases may refine what constitutes a timely and adequate cure when governance actions are in dispute.
Intersection with State Corporate Law: The opinion makes clear that federal court orders can limit state-law governance rights during the pendency of a monitorship or receivership. But nuances may arise where operating agreements and court orders intersect in more complex ways.

Conclusion

The Second Circuit’s summary order in SEC v. GPB Capital Holdings, LLC affirms a straightforward but potent principle: when parties consent to a monitorship order that mandates conversion to a receivership upon an uncured breach, the district court may enforce that conversion without undertaking additional traditional receivership analyses. The panel also endorsed the district court’s alternative, fact-intensive findings of risk and necessity, providing independent support for the remedy. For regulators, this decision validates the use of carefully drafted consent orders with clear triggers. For companies and individuals, it is a cautionary tale: post-order maneuvers that circumvent monitor authority risk triggering a far more intrusive receivership. And for courts, it is a reminder that enforcing consent orders—rooted in contract principles and equitable powers—remains a critical tool to protect investors and preserve assets in complex securities cases.