Like most Ponzi schemes, the one Carl Ruderman has been accused of running hinged on an offer too good to be true. And yet, Ruderman managed to ensnare thousands of investors in 42 states over four years, and took them for more $300 million with promises of quick double-digit returns on small investments, according to authorities.
It’s all come crashing down, and now more than a half-dozen alleged conspirators are facing jail time or are in jail or have been forced to cough up restitution. And the fraud is still unraveling.
Ruderman, who previously owned several pornographic titles, including Playgirl, and was known as the porn industry’s “invisible man” for eschewing the public eye, founded and ran a lending company in Hallandale Beach, Florida, called 1 Global Capital LLC. The company extended high-interest loans to small and medium-sized businesses that couldn’t get funding through traditional banks and investment houses.
But to fund his enterprise, according to the U.S. Securities and Exchange Commission, Ruderman enrolled a nationwide army of brokers, investment advisors, and sales agents – many of them barred from the industry or simply unregistered – who earned millions in commissions to sell shares or “contracts” in 1 Global.
According to marketing materials given to prospective investors, 1 Global used the money to extend its short-term business loans, called Merchant Cash Advances, and the investors would reap a share of the principal and interest of every loan as they were repaid, usually in a matter of a few months.
The pitch vs. reality
1 Global sold the investments as high-return, low risk, and had all kinds of legal and business documents attesting to the safety and security of the company that were designed to assuage investor skepticism.
It produced monthly statements it said were independently audited by a local firm, Daszkal Bolton LLP, that showed the company was profitable and was regularly providing “high single-digit or low double-digit returns” to investors.
It guaranteed a minimum 3% annual return, with expected returns ranging from “8% to 17%.” It claimed it had a rigorous underwriting process and turned away about nine out of every 10 loan applicants. It said it only sold “contracts” to sophisticated and qualified investors of high net-worth. It advertised a low, 4%, default rate.
All the investor money would be used to extend MCAs, and management fees were minimal, the company said. It had a legal opinion from an attorney that said the company’s “contracts” were not securities and thus didn’t need to be registered. It said its contracts were better than mutual funds or annuities and were called “Memoranda of Indebtedness.”
The problem? None of this was real, according to regulators. The monthly statements were fabricated. There was no underwriting process; the company sold its “MOIs” to anyone who put up money. Its default rate was closer to 20%. Daszkal Bolton never audited 1 Global’s statements and never endorsed its rates of returns. The company actually had a legal opinion that warned it was illegally selling unregistered securities (which it buried and did not disclose).
What’s more, according to regulators, most of the money the firm collected was actually used to fund Ruderman’s “lavish lifestyle,” including a Mercedes Benz lease, Greece vacations, a chef and housekeeper, and expensive condominiums.
The cash was also allegedly used to prop up his eight other business entities including Bright Smile Financing, Pay Now Direct, BRR Block (a blockchain technology company run by Ruderman’s son that received $1 million from 1 Global for “no consideration or legitimate services”) and the Ruderman Family Trust.
Nevertheless, plenty of individuals fell for the spiel. From February 2014 through April 2018, 1 Global received at least $320 million from 3,400 investors with at least 100 investors each located in California, Florida, Illinois, Ohio, and Tennessee, the government claims. More than one-third of the money came from those who invested through IRAs.
Reality catches up to 1 Global
The scheme came crashing down when the company could not pay investor redemptions and filed for Chapter 11 bankruptcy in 2018. Records show that of the more than $300 million the company raised, it paid out only $16 million in redemptions.
“Often, the company would not generate enough money from the MCAs to fully pay redeeming investors,” according to an SEC complaint. “Forcing it to use new investor funds to pay off redeeming investors.”
In other words, the SEC was claiming it was a classic Ponzi scheme. Regulators gave little weight to Ruderman’s claims he wasn’t responsible for what went on in his companies.
“Ruderman was a hands-on Chairman and CEO, personally overseeing all aspects of the Company's operations,” the SEC said in a filing. “There was no board of directors or any other high-level executive with decision-making authority. Ruderman knew at all times how much 1 Global had raised from investors and received a daily report showing how many cash advance transactions the company had funded.”
Moreover, investigations found an email Ruderman sent to a hedge fund that fronted him a line of credit in which he bragged "I'm personally on top of all operations from 9am thru 6:30pm everyday!" Whoops.
Ruderman himself, however, has not been criminally charged and is referred to as “Individual #1” in many of the court documents. But on the civil side, the SEC got a settlement from Ruderman – who did not admit to any wrongdoing – that included a $32 million disgorgement; a $15 million civil penalty; another $750,000 in cash; and half the equity in his five-bedroom, seven-bathroom, 9,600-square-foot tower suite condominium at Aventura’s Bella Vista North. An attorney for Ruderman did not respond to a request for comment.
Some of his alleged co-conspirators weren’t so lucky. Four company officers and attorneys, all in their 70s, were given prison time for their involvement in the scheme.
In August, attorney Andrew Ledbetter, received five years and $149 million in restitution for wire and securities fraud. The former chief operating officer for 1 Global Capital, 76-year-old Steven Schwartz, pleaded guilty to the same charges and got two years’ in prison and $36 million in restitution. The firm’s former chief financial officer, Alan Heide, pleaded guilty to conspiring to commit fraud and was sentenced to five years. And Jan Atlas, an attorney who attested to 1 Global’s financial and legal soundness, got a sentence of eight months and $29 million restitution.
Investors have filed a class-action lawsuit to try and recover their losses, and the government is continuing to try to get justice for the alleged victims. Last week, two other former company officers, Scott Merkelson and Eric Alexander, agreed to hundreds of thousands of dollars in restitution to settle SEC civil fraud claims. At least seven brokers and agents have settled allegations of selling bogus securities, and regulators say they expect more enforcement to come.