On July 27, 2018, two affiliated small business lenders — 1 Global Capital (a/k/a 1st Global Capital, and 1 West Capital (collectively, “1GC”) — filed for Chapter 11 protection in Bankruptcy Court in the Southern District of Florida. Based in Hallandale Beach, FL, the two affiliated lenders are under the same common ownership and are in the business of purportedly providing small business loans known as “direct merchant cash advances,” to various clientele. In connection with the bankruptcy filing, 1GC’s two primary executives, Messrs. Carl Ruderman and Steven A. Schwartz, relinquished their control over the company and tendered their resignations.
As reported, 1GC had around 1,000 individual unsecured creditors prior to filing for bankruptcy. These creditors had loaned 1GC money with the understanding that these funds would then be invested in direct merchant cash advances. Creditors received monthly statements which demonstrated how their investments had supposedly been allocated, in addition to being provided with an online portal to track their investments.
In total, 1GC has reported more than $283 million in unsecured lender claims. Of the 20 largest creditors, all of them are individuals or retirement accounts. Prior to the bankruptcy filing, the SEC had opened an investigation into whether 1GC was engaging in “[p]ossible securities laws violations, including the alleged offer and sale of unregistered securities by unregistered brokers, and by the alleged commission of fraud in connection with the offer, purchase and sale of securities.” At this stage, both the SEC and the U.S. Attorney’s Office for the Southern District of Florida, which recently commenced a parallel criminal investigation, are investigating allegations of possible wrongdoing or malfeasance at 1GC.
In light of these allegations and 1GC’s recent bankruptcy filing, some recent commentary has drawn a comparison to the events surrounding the Woodbridge Group of Companies’ bankruptcy filing and the SEC’s December 2017 charges against Woodbridge, alleging that the firm’s founder and former CEO, Robert Shapiro, had orchestrated a $1.2 billion Ponzi Scheme. While the investigation into 1st Global Capital continues, investors are encouraged to actively monitor the situation as it unfolds.
Creditors who invested in any 1st Global Capital direct merchant cash advances upon the recommendation of a stockbroker or financial advisor may have viable FINRA arbitration claims if the brokerage firm or Registered Investment Advisor (“RIA”) did not perform adequate due diligence before recommending the investment.
As members and associated persons of FINRA, brokerage firms and their financial advisors must ensure that adequate due diligence is performed on any investment that is recommended to investors, particularly on esoteric and more opaque investments that are not registered with the SEC, and as such, are typically offered via private placement. Further, firms and their brokers must ensure that investors are informed of the risks associated with an investment, and additionally must conduct a suitability analysis to determine if an investment meets an investor’s stated investment objectives and risk profile. Either an unsuitable recommendation to purchase an investment or a misrepresentation concerning the nature and characteristics of the investment may give rise to a claim against a stockbroker or financial advisor.
Investors who wish to discuss a possible claim may contact a securities arbitration attorney at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or firstname.lastname@example.org for a no-cost, confidential consultation.