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SEC Second Action Based On Merchant Cash Advance Program

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As the new decade unfolds, the Commission’s Enforcement division continues to focus on offering anti-fraud actions and, in particular, a claimed loan program called Merchant Cash Advance. This program was run by 1 Global Capital LLC supposedly for the benefit of companies with few credit opportunities.

According to the Commission, the only real beneficiaries of the loan program were those who initiated the program. The Commission lodged its first appeal against the scheme in August 2018. SEC v. 1 Global Capital LLC, Civil action n ° 0: 18-cv-61991 (SD Fla. Filed on August 23, 2018, unsealed on August 28). His second was brought against the director of the cabinet’s CCO on January 6, 2020. SEC c. Schwartz, Civil action n ° 9: 20-cv-80008 (SD Fla. Filed January 6, 2020).

Global Capital is 100% owned by the Ruderman Family Trust, which had around 100 employees when it filed for bankruptcy. The initial action also named as defendant Carl Ruderman, its CEO. The most recent case names Steven Schwartz as the defendant. He was a director of the company and also a COO. Mr. Swartz is Mr. Ruderman’s brother-in-law and a trustee of the Ruderman Family Trust.

Over a four-year period, beginning in early 2014, the defendants raised more than $ 287 million from approximately 3,400 investors in 25 states. Many investors who bought the company’s unregistered shares did so with retirement funds. Investors were told their money would be used exclusively for cash advances through the Merchant Cash Advance program – a business-to-business loan program for businesses that had difficulty accessing capital through sources. conventional. According to the promoters of the program, investments were rigorously controlled, only one in ten being eligible. The investments were safe, investors were told.

In fact, the offer was managed by a network of sellers which included people excluded from the activity. In reality, much of investor funds have been diverted to other high-risk projects while part of investor money has been diverted. Investors have received false statements.

Mr. Schwartz is said to have played a key role in the fraud. Specifically, he signed an agreement transferring ownership of 1 Global to the trust. Before the company declared bankruptcy in July 2018, Mr. Schwartz allegedly allowed Mr. Ruderman to use the trust to embezzle millions of dollars in investor funds for his personal use.

The complaint alleges violations of sections 17 (a) (1) and (3) of the Securities Act and section 10 (b) of the Exchange Act. This case, as well as the first, is pending. The United States Attorney’s Office for the Southern District of Florida has filed a parallel criminal action. See Bed. Rel. n ° 24707 (January 6, 2020).