SEC Charges Bankrupt 1 Global Capital and Its CEO of Operating Alleged $287 Million Loan Fraud

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There is a new development in the 1 Global Capital and 1 West Capital bankruptcy and fraud investigations previously reported by Marquardt Law Office LLC.

On August 29, 2018, the Securities and Exchange Commission (“SEC”) announced it filed charges against 1 Global Capital LLC and its CEO, Carl Ruderman.  The SEC filed its complaint in the U.S. District Court for the Southern District of Florida, which also names relief defendants including 1 West Capital LLC.

According to the SEC, 1 Global Capital hired financial advisors to fraudulently raise $287 million from more than 3,400 people nationwide whom they called “lenders.  Advisors raised money from so-called lenders for cash advances that 1 Global Capital made to small and medium-sized businesses.  1 Global and the advisors called the advances Merchant Cash Advances (“MCAs”).

The SEC said lenders were actually investors and the MCAs were investments.  The SEC alleges 1 Global Capital and Ruderman squandered and misappropriated millions of dollars contributed by investors.  1 Global owes its investors at least $272 million but only had $27.5 million to repay all creditors, causing it to file bankruptcy in July 2018, said the SEC.

You may be able to recover your losses from 1 Global Capital or 1 West if your investment advisor, insurance agent, or other financial professional sold, promoted, or recommended you an investment in these companies.  You can pursue a recovery from your financial professional and their firm through private arbitration or litigation.  This may provide you an additional recovery above and beyond what might be distributed from bankruptcy or the SEC’s action against 1 Global Capital and Carl Ruderman.

Call Marquardt Law Office LLC at (312) 945-6065 or send the firm a message to schedule a free, no obligation consultation with an attorney regarding your recovery options.

Investments Offered by 1 Global Capital and 1 West Capital

1 Global Capital (aka 1st Global Capital) claimed it was solely a lender providing cash advances—MCAs—for small to medium-sized businesses.  1 West Capital claimed the same but concentrated in California.

The two companies contracted financial advisors to promote the MCA investments.  Advisors promoted them to main street investors.  Many investors used their retirement funds to buy MCA notes.  In return, most investors received a contractual note entitled “Memorandum of Indebtedness.”

Typically, the MCA notes matured in only nine-months and then were to repay investors’ principal plus interest at a rate of 10%, a high rate for a short-term investment.  MCA notes automatically rolled into new notes if investors did not ask to redeem them.  Investors generally rolled them over, said the SEC.

Despite 1 Global Capital calling investors “lenders” and the notes Merchant Cash Advances, MCAs were essentially a type of investment commonly called a promissory note.  Promissory notes involve investors contributing capital that is pooled together by a company and used in its operations or for a set purpose.  Investors receive a promise to be repaid their principal plus interest at a set future date.

Fraudulent Misstatements Allegedly Made by 1 Global

1 Global Capital and the financial advisors it contracted made many misrepresentations, alleged the SEC. For instance, 1 Global monthly account statements stated specific businesses that investors advanced money to.  In reality, all investor money was pooled together and allocated to several businesses, said the SEC.  The statements also allegedly misstated 1 Global Capital’s profits and rates of return.

The SEC said 1 Global told investors that $46.6 million of their funds were used for operating expenses when it was really $81 million.  It also allegedly told investors they would fund MCAs averaging $68,000 when it spent millions on single investments, including a $50 million purchase for distressed credit card debt and a $40 million MCA to an auto dealer.  The SEC said 1 Global also falsely advertised the quality of MCAs, failing to disclose in one year that 18% of MCAs were made to businesses sued in collection lawsuits.

Ruderman’s Alleged Misappropriation of Funds

Additionally, Mr. Ruderman allegedly pilfered millions of dollars of investors’ money.  For instance, he made single transfers of $15.3 million, $5.6 million, and $1 million from 1 Global to other businesses he controlled, said the SEC.  He also allegedly transferred more than $4 million from 1 Global into the Ruderman Family Trust, which names his wife and children as beneficiaries.

The SEC alleged Ruderman also misappropriated money from 1 Global to pay his personal expenses.  This includes allegedly paying for his Mercedes Benz, funding a vacation to Greece, paying his housekeeper and chef, and paying his personal American Express credit card.

Why Are Financial Advisors Responsible for Investors’ Losses?

Financial professionals, like investment advisors and insurance agents, and their firms must perform due diligence before recommending or selling investments.  This is particularly true with non-standard investments promising unusually high returns like those 1 Global Capital offered.

The SEC alleges the notes were securities not registered with the SEC or state securities regulators or granted exemption from registration requirements.  Unregistered, non-exempt securities carry huge red flags, are hidden from regulators, and often involve fraud.  It is illegal for anyone to sell them.

The SEC also alleges individuals not licensed and registered as securities brokers sold the MCA notes.  As reported by Marquardt Law Office, the Kansas City Star reported that individuals licensed as investment advisors, but not as a securities brokers, sold 1 Global Capital investments.

Financial advisors are prohibited from selling investments in violation of registration requirements.  These requirements are critical investor safeguards that can carry stiff penalties for violators.

Moreover, financial advisors, like investment advisors and insurance agents, owe their clients a fiduciary duty.  This means they must always place their clients’ interests first.  Advisors are also prohibited from misrepresenting or withholding material information about investments.  The 1 Global Capital investments were rife with undisclosed red flags, and advisors earned large commissions for selling them, according to the SEC.  Advisors who breach their duties are liable for their clients’ losses.

How Can You Recover Your Losses?

When financial advisors violate their duties, investors can pursue private litigation or arbitration to recover losses from the advisors and their firms.  This gives investors a path to recover from advisors and their firms, which is independent of bankruptcy proceedings or government actions seeking recoveries from 1st Global Capital or Carl Ruderman.  Investors can use litigation and arbitration to obtain recoveries above and beyond what might be distributed through bankruptcy or the SEC.

If you or someone you know lost money to 1 Global Capital, 1 West Capital, or other risky investments, call Marquardt Law Office, LLC at (312) 945-6065 or send the firm a message to schedule a free consultation with an attorney about options to recover the losses.

Marquardt Law Office LLC is a securities law firm that represents clients nationwide.  Investors are represented on a contingency fee basis, which means the firm does not receive a fee unless and until it recovers money for an investor.

Adam J. Marquardt

Adam Marquardt represents investors in securities litigation claims such as unsuitable investments, negligence, and fraud. He is dedicated to recovering financial losses for investors, primarily through FINRA arbitration. Adam’s background includes experience as a FINRA regulator, an accountant and auditor, and an attorney who recovered $8 million litigating cases involving fraudulent financial practices. Adam previously passed the Certified Public Accountant (CPA) exam and is an attorney licensed in Illinois.

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