INVESTOR UPDATE—On August 23, 2018, The SEC Filed A Complaint Against 1st Global Capital, 1st West Capital, Carl Ruderman And Entities Controlled By Carl Ruderman Alleging Securities Fraud?

What Is Known So Far?

As previously reported by the Wolper Law Firm, P.A., on July 27, 2018, 1st Global Capital and 1st West Capital filed for bankruptcy protection in the Southern District of Florida.  It was revealed in bankruptcy court filings that the “Securities and Exchange Commission (SEC) opened an investigation into the companies’ activities related to alleged 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 United States Attorney has since opened a parallel investigation into the business practices of the companies.

On August 23, 2018, the SEC filed a Complaint for Injunctive Relief against 1st Global Capital, 1st West Capital, Carl Ruderman and various entities controlled by Carl Ruderman.  The SEC’s Complaint was originally filed under seal but, on August 29, 2018, was released to the public.  The ten count Complaint alleges securities fraud.

What Specific Allegations Are Made By The SEC?

The SEC alleges “1st Global, a private South Florida firm, fraudulently raised more than $287 million from more than 3,400 investors to fund its business of offering short-term financing to small and medium-sized businesses.  1st Global used a network of bared brokers, registered and unregistered investment advisers, and other sales agents—to whom they paid millions in commissions—to offer and sell unregistered securities to investors in no fewer than 25 states.”

During the course of the SEC’s investigation, it found that 1st Global and its principal, Carl Ruderman, “misappropriated at least $35 million of investor money, at least $28 million of which was paid (1) directly to Ruderman…to fund Ruderman’s lavish expenses such as a luxury vacation to Greece and monthly payments for his Mercedes Benz.  1st Global and its sales representatives also made numerous other material misrepresentations and omissions to investors…and violated Section 17(a) of the Securities Act of 1933…and Section 10(b) and Rule 10b-5 of the Exchange Act.”

The SEC also alleges that 1st Global falsely represented to customers that its books and records were audited by an accounting firm when, in actuality, the accounting firm ceased working with 1st Global in 2016.

What Exposure Do Financial Advisors Have For Recommending 1st Global Promissory Notes To Investors?

The network of sales agents utilized by 1st Global to market and sell promissory notes to investors principally consisted of unregistered/registered investment advisors and brokers with checkered regulatory histories.  The sales agents were paid commissions of 3% for “new money” and .75% if investors “rolled over” their notes to a new term.

The sales agents had a duty to conduct appropriate due diligence regarding the investments they recommended, which included understanding the characteristics and risks associated with the investments and accurately communicating same to investors.  In the case of 1st Global, the investors we have heard from were told that the 1st Global promissory notes were safe, conservative, short-term investment vehicles.  None of the risk factors were discussed and, from all indications, very little due diligence was performed.

In addition, sales agents who sell unregistered securities in violation of federal and/or state law are liable to the purchaser for all amounts paid for the investment, plus interest.  The promissory notes issued by 1st Global generally carried a term of nine months at which time the investor had the option of “rolling” the promissory note to a new term.  Generally, promissory notes with a nine month maturity are exempt from registration under federal and state securities laws.  However, in the SEC’s Complaint, it was critical of 1st Global’s note structure because (1) the notes automatically rolled over to a new term unless the investor said otherwise, and (2) 1st Global often took 3-6 additional months to actually repay redeeming investors.  The combination of these factors indicate that the promissory notes issued by 1st Global were, in fact, securities that required registration.  None of the promissory notes were actually registered.

What Should I Do If I Invested In 1st Global Capital Or 1st West Capital?

If you invested in promissory notes issued by 1st Global Capital or 1st West Capital, you should immediately contact a qualified securities lawyer to evaluate your recovery options.  At this stage, you are classified as a creditor of the bankruptcy estate and are limited to recovering a pro rata percentage of the bankruptcy estate at the conclusion of the bankruptcy proceeding—which could be years from now.

If promissory notes issued by 1st Global Capital or 1st West Capital were recommended to you by a Financial Advisor, Investment Advisor, Brokerage Firm, Insurance Agent or financial services industry professional, you may be able to pursue claims against those individuals and entities to recover the entirety of your investment losses.  The claims may be pursued in FINRA arbitration, arbitration through another forum or, in the absence of an arbitration agreement, in court.

If you or someone you know were sold promissory notes issued by 1st Global Capital or 1st West Capital, and you experienced investment losses, please contact the Wolper Law Firm, P.A. at 800.931.8452 or by email at mwolper@wolperlawfirm.com to discuss your specific situation and the legal options available.  The Wolper Law Firm, P.A. represents investors nationwide in securities litigation and arbitration.

Matt Wolper, the Managing Principal of the Wolper Law Firm, P.A., is a trial lawyer who has handled hundreds of securities cases during his career involving a wide range of products, strategies and securities.  Prior to representing investors, he was a partner with a national law firm, where he represented some of the largest banks and brokerage firms in the world in securities matters.

Attorney Matthew Wolper

Attorney Matthew WolperMatt Wolper is a trial lawyer who focuses exclusively on securities litigation and arbitration. Mr. Wolper has handled hundreds of securities matters nationwide before the Financial Industry Regulatory Authority (FINRA), American Arbitration Association (“AAA”), JAMS, and in state and federal court. Mr. Wolper has handled and tried cases involving complex financial products and strategies ranging from traditional stocks and bonds to options, margin and other securities-based lending products, closed/open-end mutual funds, structured products, hedge funds, and penny stocks. [Attorney Bio]