One exec pleads guilty, one gets time in Hallandale Beach company’s $287 million fraud
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The 1 Global Capital Fraud
What was sold as a boost for small businesses and an opportunity for mom-and-pop investors turned out to be a massive scam involving financial thugs throughout the Miami-Fort Lauderdale metropolitan area.
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One of the leaders who ran the 1 Global Capital fraud out of Hallandale Beach learned his federal prison time Tuesday and another is awaiting sentencing after pleading guilty last week.
Lake Worth’s Alan Heide wore many hats with 1 Global, including chief financial officer. Now, he’ll will wear one color, that of prison garb, for at least 51 months after getting a five-year sentence Tuesday (criminals must serve at least 85 percent of their sentence in federal prison). Heide pleaded guilty to one count of conspiracy to commit securities fraud in August.
Next up among 1 Global’s executives to be sentenced is Delray Beach resident Steven Schwartz. Schwartz, 75, pleaded guilty to conspiracy to commit securities fraud and wire fraud last week, three days after he was charged in Fort Lauderdale federal court. U.S. District Judge Roy K. Altman will sentence him March 13.
Also awaiting sentencing in a fraud originally estimated at $322 million — Schwartz’s admission of facts puts it at $287 million — is 1 Global outside legal counsel Jan Atlas. Atlas wrote two legal opinion letters filled with, his admission says “false and misleading statements” designed to give faux legal cover to 1 Global’s shenanigans.
The Fraud
From various court documents, here’s how the scam worked:
Starting in 2014, 1 Global claimed to make short-term, merchant cash advance loans, sort of like an Amscot for businesses. The company lured investors with the promise of getting some of what the borrowing businesses paid back.
But, soon enough, 1 Global realized it lacked the volume of borrowers to fulfill its promises to investors, and too many borrowers didn’t pay back the short-term loans.
This was not disclosed to new investors.
Nor was it disclosed to new investors that 1 Global’s former CEO Carl Ruderman, referred to as “Individual #1” in Schwartz’s admission of facts, was using their money to pay large commissions to 1 Global employees and contractors; pay personal expenses for Ruderman, his family and other, unrelated businesses; and pay back previous investors, Ponzi-scheme style.
Also, the 1 Global group lied to new investors about what an independent audit said about 1 Global’s financial situation. The firm never finished the audit.
On July 27, 2018, 1 Global filed for bankruptcy with 3,400 investors owed $287 million.
Heide’s Situation
Heide, 61, served as CFO, and, at other times, executive vice president and director, syndicate partnership relations. Like Schwartz, Heide knew 1 Global’s faults. His admission of facts says he even pointed out the problems to Ruderman.
Ruderman’s response: keep the money flowing from 1 Global to me, my family and my businesses.
“Eventually, these transfers constituted amounts well in excess of [Ruderman’s] investment into the business,” Heide’s admission of facts states. “By late 2016, at least, these transfers constituted nothing more than misappropriations of investor cash that had not been deployed to a [merchant cash advance] agreement and were instead deployed at [Ruderman’s] direction for his own use.”
Heide left 1 Global in August 2017, then lied to the FBI about lying to investors about the audit.
Schwartz’s role and situation
As a consultant, director and chief operating officer, Schwartz touched many facets of the fraud. He knew the numbers didn’t work; he knew about the lies investors were told about the audit.
In addition, he knew about a summer 2016 legal memo from an outside law firm that told 1 Global it was violating federal law by offering “unregistered securities.”
Schwartz’s admission of facts says he “was told by conspirators that such an opinion, if made public and followed, could end 1 Global’s operations. lnstead of informing investors of this material risk, (Schwartz) allowed others at 1 Global to conceal the outside legal memoranda, and allowed 1 Global to continue its operations in contravention of the legal advice it had received.”
Schwartz is looking at a maximum of five years in prison and a fine.
This story was originally published January 16, 2020 at 6:00 AM.
