Carl Ruderman Charged With Fraud in 1 Global Capital Case
On July 25, a grand jury indicted Ruderman, once dubbed the “invisible man” of the porn industry, in the Southern District of Florida, alleging he spearheaded the sprawling scheme to defraud investors through his firm 1 Global Capital. The company had raised money from investors across dozens of states while amassing a $50 million cash deficit before filing for bankruptcy, the feds say.
The Hallandale Beach-based business provided short-term cash advances to small and medium-sized businesses, many of which did not qualify for traditional bank lending. Ruderman, who once owned a 9,600-square-foot apartment in Aventura, would seek out investors to fund the merchant cash advances (MCAs) by “promising significant returns on investment, including that 1 Global would generate double-digit returns,” according to the indictment.
To rope in investors, Ruderman and co-conspirators — including former chief financial officer Alan Heide and attorney Andrew Ledbetter — misrepresented the performance of 1 Global’s portfolio and inflated the company’s past returns, federal prosecutors say. The indictment alleges Ruderman lied about the status of some cash advances by under-reporting to investors how often the advances were going into default.
1 Global failed to loan out tens of millions of dollars that the company had raised from investors, while Ruderman diverted investors’ cash to bankroll travel, insurance payments for his art collection, drivers, housekeepers, mortgage payments, and a luxury car for his wife, prosecutors claim.
“Ruderman and his co-conspirators falsely and fraudulently told investors that undeployed funds were being held in 1 Global bank accounts, awaiting deployment to future small and medium-sized businesses,” the indictment alleges.
Ruderman faces a wire fraud charge and two counts of conspiracy to commit fraud.
The indictment says that at one point in 2016, in response to an email noting a retirement account had invested $165,000 and another person had invested $25,000, Ruderman allegedly said, “Nice. Love [the investment advisors who brought in these people]. Need 14 more… and I’ll be in Pig Heaven!”
As investors, advisers, and regulators began questioning whether 1 Global was marketing unregistered securities, Ruderman instructed attorney Jan Atlas in May 2016 to write an opinion letter that “falsely and fraudulently” said the company’s offerings were securities, according to prosecutors. The indictment alleges Atlas wrote a second opinion letter in August 2016.
“In doing so, Ruderman intentionally skirted federal securities laws and SEC registration requirements, which would have greatly reduced his ability to solicit individual and unaccredited investors and to receive additional investor money,” the indictment alleges.
In February 2018, the indictment says, an investment adviser, on behalf of two investors, sent an email to Ruderman requesting a return of their money, saying the clients were “throwing 1st Global Capital into the bucket as a potential Ponzi scheme.”
Five months later, the company declared bankruptcy and Ruderman resigned as chief executive officer.
In August 2018, Ruderman and 1 Global Capital were slapped with civil charges from the Securities and Exchange Commission (SEC), which claimed the company defrauded “at least 3,400 retail investors, more than one-third of whom invested their retirement savings.”
The SEC alleged investors “were given bogus account statements and were falsely told that [the company] had an independent auditor, and its secured loans, typically for small amounts, had low default rates.” In reality, according to the SEC’s findings, the company made “large, unsecured loans and had significant problems with collections.”
Ruderman fought the SEC’s push for a blanket asset freeze in the case, claiming in a motion that he was “not involved in 1 Global’s representations to purported investors” and that 1 Global’s marketing materials were approved by legal counsel. He unsuccessfully attempted to persuade the presiding federal judge that the company’s investment products were not securities and that the SEC’s claims were consequently invalid.
His attorneys argued that any alleged shortfall in the company’s capital was a result of “legitimate business transactions by 1 Global that ended up having negative outcomes.”
“But that is not a securities violation. That’s business,” Ruderman’s motion claimed.
Ruderman entered into a 2019 consent judgment with the SEC that held him liable for a disgorgement of $32 million and a $15 million civil penalty. He agreed to surrender $750,000 in cash, as well as 50 percent of the equity in his multimillion-dollar Aventura condominium, the SEC said.
Two years ago, Ledbetter, Atlas, and the onetime chief operating officer of 1 Global, Steven Schwartz, were sentenced after pleading guilty to conspiracy to commit wire fraud and securities fraud.
Ledbetter was sentenced to 60 months in prison and ordered to pay $149 million in restitution. Schwartz was sentenced to two years and was ordered to pay more than $36 million to the victims. Atlas was sentenced to eight months in prison and required to pay roughly $29 million in restitution.
In 2020, Heide was sentenced to five years in prison and ordered to pay nearly $58 million.
