Legal Briefs
Prominent Attorney Criminally Charged In 1 Global Capital Mess
September 17, 2019
Another individual has been criminally charged in connection with the 1 Global Capital securities case. 74-year-old Jan Douglas Atlas, a securities attorney, was charged with 1 count of securities fraud by the US Attorney in South Florida on Tuesday for authoring opinion letters in 2016 that falsely described that the investments were not securities nor subject to federal securities laws or registration requirements.
The charges allege that Atlas “came to understand” that individuals representing 1 Global were not interested in accurate legal advice based on real facts and that they instead wanted false legal cover that would advance the desired outcome to continue to profit from 1 Global. He allegedly made false and misleading statements despite knowing the true nature of how the investments worked and that they were in fact securities as defined under federal securities laws.
“Atlas’s opinion letters were used and relied upon by 1 Global employees and agents to continue to raise money illegally,” the Department of Justice said in an announcement.
Atlas was also compensated by receiving a percentage of the commissions generated from the fundraising scheme to the tune of $627,000 paid to his personal checking account. These payments were not disclosed to his employer, Kopelowitz Ostrow, as required.
Atlas was also separately charged by the SEC.
His employer was not charged with any wrongdoing in either action. Atlas was previously listed as a partner at the firm but is no longer on the firm’s website.
Atlas is the second individual to be criminally charged in connection with 1 Global Capital. The first individual, Alan Heide, who served as 1 Global Capital’s CFO, pleaded guilty to conspiracy to commit securities fraud. He is scheduled to be sentenced on December 12th.
Online Lender Wins Massive Arbitration Award After Retailer Challenged The “True Lender” Of The Loans
September 13, 2019
An arbitrator was unconvinced by a retailer’s arguments that business loans it obtained from Celtic Bank via Kabbage were responsible for the business’s eventual failure.
In 2017, NRO Boston, LLC and Alice Indelicato filed a lawsuit against Kabbage Inc. and Celtic Bank Corporation for allegedly violating Massachussetts’ usury law when the parties engaged in financing transactions years earlier. The complaint alleged that Kabbage’s relationship with Utah-based Celtic Bank was a “rent-a-bank” scheme that enabled Kabbage, as part of a sham, to piggyback off of Celtic Bank’s exemption from state usury laws. State chartered banks are typically not subject to state usury laws even in other states. The usurious loans it obtained from the parties, NRO argued, caused severe mental anguish, emotional distress, and financial strain which forced them to obtain even more loans from other lenders.
At the time, the National Law Review said this case exemplified the litigation risk inherent in using bank partnerships and that it was the latest example in the burgeoning area of “true lender” litigation.
Kabbage responded to the suit by enforcing its arbitration provision and the underlying litigation was stayed. The arbitration process proved to be extensive and expensive and tallied up more than 800 exhibits and 12 witnesses. On July 24, 2019, the arbitrator announced his decision, and it didn’t bode well for NRO Boston.
The difficulties the retailer encountered, the arbitrator wrote in his written decision, were caused by the owners’ inexperience, mismanagement of the business, the rapid expansion of the business, the assumption of millions of dollars of debt, and excessive owner compensation. NRO’s F rating with the BBB and the fact that the owners had paid themselves a whopping $1.3 million from 2010 – 2013, well in excess of industry averages, were reasons the business failed, the arbitrator wrote. Furthermore, Kabbage and Celtic Bank only accounted for 2.3% of NRO’s debt.
“The obvious conclusion, and I so find, is that Celtic and Kabbage and their business arrangement had nothing to do with the demise of NRO.”
More to the point, the arbitrator concluded that there was no merit to the allegation that Kabbage’s relationship with Celtic Bank was a “rent-a-bank” scheme.
As a result, Celtic Bank was awarded a grand total of nearly $3.3 million in legal fees, costs & expenses, and the outstanding balance owed on the loans.
On September 9, NRO filed a petition in federal court to vacate the arbitration award, in part because they believe the arbitrator engaged in a manifest disregard of the law. The matter is currently pending.
Four Plead Guilty In Fake Business Loan Scheme
September 11, 2019
Four of the five loan brokers indicted in a fake business loan scheme have pled guilty to charges.
Toplica and his co-conspirators were alleged to have duped an Ohio victim out of hundreds of thousands of dollars in upfront fees, the title to 55 vehicles including a Ford Mustang, several dump trucks, several tractors, several restored classic vehicles, a Freightliner motor home, and trailers. The ruse was that the money was going towards upfront fees to secure a loan and the vehicles were to serve as collateral. In reality there was no loan.
Haki Toplica, the group’s ringleader, pled guilty to 4 counts of wire fraud and 1 count of conspiracy.
Kathryn De La Torre, Luisa Goris, and Robert Russo also pled guilty to various charges. The case against co-defendant Haider Islam is still ongoing. Sentencing for the 4 defendants is expected to happen in January.
Princeton Alternative Income Fund Saga Devolves Into SEC Investigation, RICO Lawsuit
August 18, 2019The demise of the Princeton Alternative Income Fund has resulted in several ugly twists and turns. In addition to a slew of lawsuits, the bankrupt hedge fund is also being investigated by the Securities and Exchange Commission. Matthew Cantor, who is serving as the bankruptcy Trustee, cited the SEC’s probe as one of many reasons he filed a RICO lawsuit late last month against individuals and businesses formerly involved with the hedge fund.
Princeton’s trouble snowballed after the very public collapse of Argon Credit of which Princeton was a major investor. That in turn created a conflict with Ranger Direct Lending, a UK fund that had invested in Princeton. The end result is that Argon and Princeton filed for bankruptcy while Ranger was wound down.
1 Global Capital’s Carl Ruderman Consents To Judgment With The SEC
August 10, 2019Update 10/4/19: According to the docket, Ruderman has satisfied the judgment in full, with only the sale of his condo remaining.
The SEC’s lawsuit against Carl Ruderman, the former CEO of Hallandale Beach-based 1 Global Capital, has come to an end. He has consented to judgment in a settlement and the penalties are devastating, papers filed on friday with the Court show.
Specifically, Ruderman is liable for disgorgement of $32,587,166 representing profits gained as a result of the conduct alleged together with prejudgment interest on disgorgement of $1,517,273 and a civil penalty of $15,000,000. He must also sell his Condominium and disgorge 50% of the equity. Online real estate websites estimate his property to have 5 bedrooms, 8 bathrooms, and be worth in the range of $5,000,000 – $6,000,000.
1 Global Capital filed for bankruptcy last year after its business was hampered by investigations being conducted by the SEC and US Attorney’s Office. The SEC brought its case against Ruderman and his company a month later and alleged that it “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 investments were alleged to be unregistered securities and that millions of the funds raised from investors were misappropriated by Ruderman. The settlement stipulates that he does not admit or deny the allegations.
No criminal charges have been brought to date.
The SEC settlement was technically entered into in June but had to be reviewed and approved by the five SEC commissioners.
The unopposed motion for judgment was filed last week. It was signed by the judge on Monday, August 12th.
Loan Broker Busted In Advance Fee Loan Scam Faces Drug Charges
July 20, 2019Demetrios Boudourakis, who was arrested last month for operating an advance fee loan scheme that allegedly defrauded small business owners nationwide, is also facing federal drug charges. The criminal complaint, filed on June 14th, asks for an arrest warrant for conspiring to distribute controlled substances.
Star Fundraiser For 1 Global Capital Settles With The SEC
July 15, 2019
Henry J. “Trae” Wieniewitz, III was charged by the SEC on Monday for his role in allegedly selling unregistered securities in two companies, 1 Global Capital (the now defunct merchant cash advance provider) and Woodbridge Group of Companies (a purported real estate lending business revealed to be a $1.2 billion ponzi scheme).
“Wieniewitz and Wieniewitz Financial raised more than $11.4 million and reaped approximately $500,000 in commissions from unlawful sales of Woodbridge securities, and raised more than $53 million and obtained approximately $3 million in commissions from unlawful sales of 1 Global securities,” the SEC stated.
Wieniewitz was not a registered broker-dealer nor associated with a registered broker-dealer.
A settlement was announced simultaneously. “Wieniewitz and Wieniewitz Financial settled the SEC’s charges as to liability without admitting or denying the allegations, and agreed to be subject to injunctions, with the court to determine the amounts of disgorgement, interest, and penalties at a later date,” an SEC statement said.
Wieniewitz was not alone in selling investments in both 1 Global and Woodbridge.
Separately, the owner of Woodbridge and two former directors of the company were recently charged criminally.
No criminal charges have been brought to date in the 1 Global Capital saga. That could change. 1 Global Capital revealed in 2018 that it was being investigated by the US Attorney’s office. That along with the SEC investigation prompted the company to file for bankruptcy. The SEC subsequently brought civil charges.
Documents filed in the SEC case against 1 Global’s former owner, Carl Ruderman, have since revealed that at least one former employee had been approached by the FBI about the operations of 1 Global.
Last month, it appeared Ruderman and the SEC were heading towards a settlement.
One notable fact about 1 Global Capital is that the company participated in the largest merchant cash advance in history at $40 million. That transaction has become a point of significant controversy and litigation. The recipient of those funds, a conglomerate of car dealerships in California, have shut their doors.
Federal Lawmakers Not Convinced NY Confession of Judgment Ban is Enough
June 25, 2019
The recent New York State law that effectively ended the era of Confessions of Judgment in the small business finance industry is apparently not enough to satiate the outrage of some federal lawmakers. This morning, Rep. Nydia M. Velázquez (D-NY) and Rep. Roger Marshall (R-KS) introduced the “Small Business Lending Fairness Act” that would outlaw confessions of judgment in small business financing transactions nationwide.
Given the impact the New York law is expected to have, the effort may appear to be duplicative. But not quite. The New York law prohibits COJs from being filed in New York against out-of-state debtors. As New York had the friendliest commercial COJ process, financial companies were using New York courts to file COJs against debtors in all 50 states whether there was a nexus to New York or not. By requiring the debtor be in New York, as the new law requires, the utility of COJs in the New York courts for the other 49 states has been eliminated.
However…
That doesn’t mean that courts in other states don’t allow commercial COJs to be filed in their home states. Some do, such as California and Pennsylvania, for example, but the process isn’t as friendly or as easy as New York’s. (See an analysis of California’s and Pennsylvania’s COJ process here)
That is where the proposed federal law would have the most reach and why a federal bill is not merely an academic exercise at this stage.
The federal bill’s language is not new. It mirrors a bill introduced by Senators Sherrod Brown and Marco Rubio in December. No movement has been made on it since but they reportedly intend to move forward with it.
Velázquez intends to keep the momentum going.
“I was appalled to find out that New York State has become an epicenter for dishonest lenders seeking to swindle small businesses around the country,” Velázquez said. “That’s why I’m proud to introduce this legislation and will be leading a hearing this week to further expose these abusive practices.”
The hearing she refers to is titled, “Crushed by Confessions of Judgement: The Small Business Story” and it’s being held tomorrow at 11:30am on Capitol Hill. It will be livestreamed here.
An alleged victim of predatory lending is among the guest speakers. Mr. Jerry Bush, who was featured in Bloomberg’s controversial series on merchant cash advances, is on the witness list. Bush reportedly lost his business after a series of unfortunate business dealings. Nobody from the small business finance industry is currently appearing to offer any opposing testimony on the matter of COJs. If that changes, deBanked will provide an update.
The hearing will be livestreamed on the deBanked homepage.
