As the new decade unfolds the Commission’s Enforcement Division continues to focus on offering fraud actions and, in particular, a claimed lending program called the Merchant Cash Advance. That program was operated by 1 Global Capital LLC supposedly for the benefit of firms with few credit opportunities.
According to the Commission, the only actual beneficiaries of the so-called lending program were those behind the scheme. The Commission brought its first action involving the scheme in August 2018. SEC v. 1 Global Capital LLC, Civil Action No. 0:18-cv-61991 (S.D. Fla. Filed August 23, 2018, unsealed Aug. 28). Its second was brought against the firm’s CCO director on January 6, 2020. SEC v. Schwartz, Civil Action No. 9:20-cv-80008 (S.D. Fla. Filed Jan. 6. 2020).
Global Capital is wholly owned by the Ruderman Family Trust, which had about 100 employees at the time it filed for bankruptcy. The initial action also named as a defendant Carl Ruderman, its CEO. The most recent case names Steven Schwartz as a defendant. He served as a director of the firm and also its COO. Mr. Swartz is the brother-in -law of Mr. Ruderman and a trustee of the Ruderman Family Trust.
Over a four-year period, beginning in early 2014, defendants raised over $287 million from about 3,400 investors in 25 states. Many investors who purchased the unregistered shares of the firm did so with retirement funds. Investors were told that their money would be used exclusively for cash advances through the Merchant Cash Advance program – a business to business loan program for firms that had difficulty accessing capital through conventional sources. The investments were rigorously vetted with only one of ten qualifying, according to the program promoters. The investments were safe investors were told.
In fact, the offering was run by a network of salesmen that included persons barred from the business. In reality large portions of the investor funds were diverted to other high-risk projects while portions of the investor cash was misappropriated. Investors were furnished with false statements.
Mr. Schwartz is alleged to have played a key role in the fraud. Specifically, he executed an agreement conveying ownership of 1 Global to the trust. Prior to the time the firm declared bankruptcy July 2018, Mr. Schwartz is alleged to have permitted Mr. Ruderman to use the trust to misappropriate several million dollars of investor funds for his personal use.
The complaint alleges aiding and abetting violations of Securities Act Sections 17(a)(1) and (3) and Exchange Act Section 10(b). This case, along with the first, is pending. The U.S. Attorney’s Office for the Southern District of Florida filed a parallel criminal action. See Lit. Rel. No. 24707 (Jan. 6, 2020).