1 Global Capital Charged With Fraud by SEC

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The Securities & Exchange Commission unsealed a 10-count complaint against 1 Global Capital LLC (“1st Global Capital”), its owner Carl Ruderman, and related parties on Wednesday.

The South Florida firm “fraudulently raised more than $287 million from more than 3,400 investors to fund its business offering short-term financing to small and medium-size businesses,” the complaint begins.

Investors were offered low-risk, high-return investments that 1st Global would use to fund merchant cash advance deals. Ruderman, who owned the company through a trust, misappropriated $35 million of the funds, paying a lot of it to himself and companies he controlled that had nothing to do with MCA, the SEC alleges. Beyond that, millions more went towards other pet projects like a $50 million purchase of distressed credit card debt.

But the deception went deep, the complaint lays out. 1st Global touted a default rate of only 4% despite the fact that 15-18% of their deals over the last 2 years had resulted in collections lawsuits.

By October 2017, the statements investors received showing their monthly performance were faked with the value and performance significantly inflated. By June 2018, one line item on monthly statements (labeled “cash not deployed”) reported that investors collectively had $70 million in idle cash ready to be put into deals. Meanwhile, the company itself only had about $20 million in all of its bank accounts combined, money that was being used for everything including operating expenses, salaries, and commissions.

1st Global’s alleged auditor, Daszkal Bolton, LLP, says they never audited 1st Global’s statements and haven’t had anything to do with the company since 2016. Nonetheless, 1st Global placed Daszkal Bolton’s name on statements given to investors and stated on their website that investor balances were validated by an accounting firm quarterly.

Last modified: June 16, 2019

Category: Legal Briefs, merchant cash advance, Regulation

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