In July, two Hallandale Beach, Florida, companies, 1 Global Capital, LLC*, and its sister company, 1 West Capital, filed for Chapter 11 bankruptcy protection. The two companies, which had the same owner, Carl Ruderman, provided short-term cash advances called Merchant Cash Advances or MCAs to small businesses.
The bankruptcy not only affected the 100 employees of the company, but over 3,400 people nationwide who had invested more than $287 million in the companies since 2014.
These investors, many of whom used their retirement savings to invest, are at risk of losing significant funds.1 In August, the U.S. Securities and Exchange Commission (SEC) filed a complaint against the companies alleging that they perpetrated a four year long unregistered securities offering fraud.
The SEC complaint alleges that 1 Global Capital used a network of barred brokers, registered and unregistered investment advisers, and other sales agents to offer and sell unregistered securities to investors in more than 25 states. 1 Global paid sales agents nearly $9 million in commissions for getting investors to put money into 1 Global.2 Investors were promised a high-return, low-risk investment whereby 1 Global Capital would use investor funds to make short-term Merchant Cash Advances to businesses that could not obtain more traditional financing, such as bank loans. According to one investor, the terms of the loans averaged just nine months and they had a yield of 10 percent.3
Some of the investor’s money did fund MCAs. Through April 2018, 1 Global and 1 West made about $348 million in Merchant Cash Advances involving approximately 4,000 MCAs. However, the SEC complaint alleges that substantial investor funds were used to pay operating expenses and to purchase already-distressed, long term credit card debt which was not an allowed use of investor funds. Further, the complaint alleges that 1 Global Capital, and its owner, Carl Ruderman, misappropriated at least $35 million of investor money, at least $28 million of which was paid to other entities Ruderman owned or controlled; to companies operated by Ruderman’s relatives and acquaintances that had nothing to do with 1 Global’s cash advance business; and to fund Ruderman’s lavish expenses such as a luxury vacation to Greece and loan payments on his Mercedes Benz and personal credit cards.4
Investors were told that the average loan amount was $68,000, but 1 Global often made loans of hundreds of thousands, even providing a $40 million loan to a California auto dealership. Investors were also not told that 18 percent of the MCAs that the company funded were the subject of collection lawsuits in 2016.
On monthly account statements to investors, starting in October 2017, 1 Global also misrepresented the amount of investor cash it had on hand and the rates of return investors were earning. These statements also falsely claimed that the audit firm of Daszkal Bolton LLP had audited 1 Global’s financial statements.
As of April 2018, 1 Global owed investors at least $272 million but only had $27.5 million in its bank accounts. 5 Carl Ruderman’s assets have been temporarily frozen along with those of six other companies which he owned.6 These companies were named in the SEC filing as Bright Smile Financing, BRR Block, Digi South, Ganador Enterprises, Media Pay, Pay Now Direct and the Ruderman Family Trust.
*The 1 Global Capital loan business is a separate, unrelated company from 1st Global Capital Corp, an independent broker-dealer based in Dallas, Texas, according to Bruce Kelly with InvestmentNews.com.7
If you have questions about investment fraud, financial schemes, broker misconduct, or about your broker’s management of your account, please contact our Investment and Securities Fraud Law Firm at: 313-334-7767 for a Free case evaluation. We have been helping investors recover losses from fraudulent financial advisors for over 20 years!
1,2, 4,5 U.S. Securities and Exchange Commission v. 1 Global Capital and Carl Ruderman, 8/23/2018
3,7 Unregistered Advisers Linked to Latest Alleged South Florida Lending Fraud, Bruce Kelly, InvestmentNews.com, 8/7/2018
6 SEC Alleges Florida Lender Duped KC Investors and Thousands of Others, Kansas City Business Journal, 8/30/2018