Story Series: 1 Global Capital
1 Global Capital Charged With Fraud by SEC
August 29, 2018
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.
Syndication at Heart of SEC and Criminal Investigation into 1st Global Capital
July 31, 2018
New light was shed into the bankruptcy filing of 1st Global Capital this morning. The investigations by the SEC and the US Attorney’s office are related to possible securities law violations, “including the alleged offer and sale of unregistered securities, the alleged sale of securities by unregistered brokers, and the alleged commission of fraud in connection with the offer, purchase, and sale of securities.”
The company is also being investigated by several states attorneys general where individuals were solicited to invest into merchant cash advance deals.
No charges have been filed in these investigations to-date, but they have prevented the company from being in a position to raise new capital.
There are more than $283 million in unsecured lender claims. Of the 20 largest creditors, all of them are individuals or their retirement accounts.
The company’s two main executives, Carl Ruderman and Steven A. Schwartz, relinquished their powers and resigned on Friday. Darice Lang, the company’s operations director, will stay on and report to the newly appointed Chief Restructuring Officer.
The company’s 1,000+ individual unsecured creditors (syndicates) loaned money to be invested in merchant cash advances and would receive a monthly statement to see how their money had been allocated. They also had access to a portal to track their accounts.
Of the $283 million owed to the individuals, the company’s unaudited financials reflect $238 million in A/R (primarily MCAs outstanding), $21 million of intercompany accounts, and $17.3 million in unrestricted cash.
1st Global generated $22.6 million in revenue in 2017 and $29.3 million in revenue in the first 6 months of 2018.
1 Global Capital Files Chapter 11
July 30, 2018
UPDATE: A joint motion filed this morning explained that the companies were forced to file bankruptcy “in order to address a sudden and acute liquidity crisis and to preserve their assets and business operations for the benefit of the individual lenders and all other constituencies. As a result of the investigations commenced by the US Attorney’s Office and Securities and Exchange Commission, with which the Debtors have been and will continue cooperating, the Debtors have ceased their pre-petition effort to raise capital.”
1 Global Capital LLC filed for Chapter 11 on Friday, according to a voluntary petition filed in the Southern District of Florida. The company’s estimated assets and liabilities exceed $100 million while the number of estimated creditors was listed as between 1,000 and 5,000.
A related company, 1 West Capital LLC, also filed for Chapter 11.
Greenberg Traurig, LLP has been retained to assist on the companies’ behalves.
In a joint motion filed this morning, both entities described themselves as “providing direct merchant cash advances to small businesses across the United States.”
