More charged, $12 million to victims: an update in South Florida company’s $281 million fraud

By David J. Neal
December 28, 2020

Victims of the 1 Global Capital fraud received another $12 million this week and the Securities and Exchange Commission charged three more unregistered brokers allegedly involved in selling the Hallandale Beach company’s securities this month.

But that $12 million and the $317,690 from one of the men charged by the SEC still might be scant solace to the 3,600 investors scammed out of hundreds of millions by 1 Global Capital’s white collar gang.

THE MONEY

Cassel Salpeter’s James Cassel, liquidating trustee of the 1 GC Collections Creditors’ Liquidating Trust, said the $12 million brings the total returned to investors to $124 million, about 44 cents on the dollar.

“I got a phone call from a retired teacher in California who put $10,000, everything she had other than Social Security, into the the company. That is who I’m working for,’” Cassel said he told another attorney connected to the case. “We want to feel we’ve maximized recovery for over 3,500 investors, who are, unfortunately, going to lose money.”

At 44 cents on the dollar, that puts the amount ripped off at $281.8 million. Various court documents place the amount at $322 million.

THE SCHEME

As stated in various court documents of those already convicted of their role, 1 Global Capital was sold to investors as a short-term, high-interest cash lender for small businesses. Investors would get their principal and some interest when the businesses repaid 1 Global.

Lies fooled those investors concerning the high commissions paid to middlemen and unlicensed brokers; the securities laws being broken, concealed by fraudulent legal opinions; the money sucked out of 1 Global for personal use by CEO Carl Ruderman; and the $50 million in arrears the group attempted to cover up, Ponzi-scheme style.

Over the last 15 months, the Justice Department and SEC pulled a parade of 1 Global cronies through the federal courts on their way to federal prison.

  • Chief financial officer Alan Heide​ already is sitting in federal prison in Jesup, Georgia until December 2024 after pleading guilty to securities fraud.
  • Attorney Jan Atlas’ sentencing has been set for Jan. 21 on securities fraud.
  • Former 1 Global director Steven Schwartz is set for sentencing April 9 on
    securities fraud and conspiracy to commit wire fraud.
  • Attorney Andrew Ledbetter has entered a plea agreement​ on those same charges and even was allowed to travel to Washington D.C. to spend Thanksgiving with his adult son.

Ruderman still hasn’t been criminally charged. ​The SEC gained a judgment against him​ in 2019 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, 20165 NE 39th Pl.

THE NEWLY CHARGED

The SEC charged Roger E. Dobrovodsky, a 66-year-old from Indianapolis, with being an unregistered broker during the 16 months in 2017 and 2018 that he sold 1 Global Capital securities while using fraudulent materials. The SEC says Dobrovodsky has consented, without legally admitting any wrong, to giving up the $317,690 he made in commission, $32,038 in prejudgment interest and $50,000 civil penalty.

The amounts of those punitive payments from Robert Seth of Georgetown, Texas, the SEC says, still have to be determined although Seth’s consented to them. He made almost $282,000 in commissions, the SEC charges, from his two years of selling 1 Global securities as an unregistered broker.

Matthew Walker, 40, from Olathe, Kansas, is the managing partner and chief compliance officer of Pinnacle Plus Wealth Management. The SEC says Walker, also, was an unregistered broker who kept selling 1 Global securities until June 2018, “despite being confronted with numerous red flags that the 1 Global investments were not what he had been told and that 1 Global officers had not been honest with him.”

The SEC says Walker earned $393,306 in commissions and his companies earned another $300,000. Most of his customers, numbered at over 140, were from the Kansas City area.

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Bankruptcy trustee recovers $12M more for victims of $332M 1 Global Capital fraud

By Ashley Portero
December 28, 2020 

A bankruptcy trustee recovered and distributed $12 million to thousands of creditors who were victims of a $332 million investment fraud.

Cassel Salpeter and Co. chairman and co-founder James S. Cassel, who was appointed director of 1 Global Capital’s estate in bankruptcy court, said about 3,750 creditors that invested in the company received a payment. To date, Cassel has recovered $124 million on behalf of 1 Global Capital victims, after distributing an initial $112 million payment to investors in 2019.

“Considering the challenges posed in collecting on 4,000 cash advances and pursuing legal actions all over the country, this significant additional distribution is a spectacular result for a situation like this,” Cassel said. “It is a testament to the team of professionals and the staff who worked diligently to continue the recovery efforts during the difficult year of 2020.”

Cassel said the liquidating trust will continue to pursue actions to generate additional returns to creditors.

Hallandale Beach-based 1 Global Capital, which provided loans to small businesses, filed for Chapter 11 bankruptcy in 2018.

Soon after the bankruptcy filing, the U.S. Securities and Exchange Commission filed civil fraud charges against the company and former CEO Carl Ruderman, claiming they fraudulently raised $332 million from investors.

According to the SEC lawsuit, 1 Global Capital overstated the value of investors’ accounts and their rate of returns and misappropriated at least $32 million to personally benefit Ruderman. Ruderman agreed to disgorge $32 million in ill- gotten gains and pay a $15 million civil penalty to settle the charges.

Many of the scheme’s victims were elderly individuals who invested between $50,000 and $100,000, Cassel said.

Earlier this month, the SEC charged three former 1 Global Capital sales agents with federal securities registration violations. The commission alleged the trio collectively sold more than $21 million in unregistered transactions to retail investors while acting as unregistered brokers.

In September, the SEC filed charges against Fort Lauderdale attorney Andrew Dale Ledbetter for allegedly using false legal opinion letters to raise $100 million from investors as outside counsel for 1 Global Capital.

Click here to read the PDF.

Though slow to come, better times are ahead | Opinion

2020 highlighted how critical agility is for middle market businesses, with many rapidly reinventing themselves to secure their future. While many technology and ancillary companies thrived, if your business did not fulfill a need created, or required by the pandemic, you likely had to be especially creative to stay afloat. While we are not through with 2020’s pandemic challenges, a gradual comeback is on the horizon, even as many traditional business norms may never be the same.

Here are four areas that companies need to watch in 2021:

Technology: Software and artificial intelligence will continue to revolutionize labor. Advances in virtual reality now promise equal or increased productivity from the comfort of your home office. Meanwhile, telemedicine, video conferencing, and a slew of apps with expanding capabilities exploded in usage with much faster adaptation than anticipated, but also with some obvious limits. Technology will continue to define 2021, but how much so and what will stick remains a question.

Work-from-home (WFH): Call me contrarian, but as an investment banker, I find it hard to achieve the same productivity working from home, especially when it comes to new client origination. In my view, you also lose corporate culture, camaraderie and collaboration.

However, some studies disagree, positing that productivity increases when employees work from home. For those working from home with families, the intangible benefits of spending more time with them is now evident, and they will likely lobby for WFH to continue.

For companies that can provide the option, a hybrid model seems likely, with some days spent at the business location or traveling, and others spent working from home. But keep in mind this is simply not an option for many industries.

How will the COVID vaccine rollout go? Will the vaccines be like a flu shot? Will enough people take them? Will vaccines be required yearly, and will each be as effective? Once taken, what comes next? Is it back to the office immediately, or will we ease back into reentry? How long will your immunity last?

Given our interconnectivity, these answers will have huge implications for the 2021 marketplace, but without knowing them, businesses will find it difficult to plan next moves. Flexibility will be key. In any case, the rollout’s impact likely won’t be felt until the second part of the year.

Will we even go out when it’s safe? This newly guarded approach to life has many wary of shaking hands or venturing to business functions. But your company can’t grow unless you’re hunting and securing fresh opportunities, while also developing new relationships. At some point, people will certainly break out of their silos in 2021, but how often, and what must be done to make us be and feel truly safe? Finding the right pace will prove a balancing act.

So much remains uncertain. Most of us survived 2020, albeit not unscathed, and we saw the acceleration of innovations like virtual meetings, telemedicine and WFH. Many of these changes are here to stay, and yet, even with an ambitious vaccine rollout, much business activity may look like it did in 2020, especially for the first half of 2021. There are, however, promising bright spots ahead, but much we have to watch carefully to make the best adjustments and come out on top in 2021.

James S. Cassel is co-founder and chairman of Cassel Salpeter & Co., LLC, an investment- banking firm with headquarters in Miami that works with middle-market companies. jcassel@casselsalpeter.com or via LinkedIn at  https://www.linkedin.com/in/jamesscassel.

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Creditors recovering another $12 million lost in Broward securities fraud case

By David Lyons
December 23, 2020
 

It’s technically not a gift for the holidays. But the 3,750 investors and other creditors allegedly defrauded by a payday loan operation based in Hallandale Beach will gladly accept the $12 million recovered on their behalf.

The money is the latest distribution to people who are said to have lost more than $300 million to a business called 1 Global Capital. The firm filed for bankruptcy in mid-2018 after running short of cash amid a Securities and Exchange Commission probe that led to civil fraud charges against a variety of individuals, as well as criminal charges against lawyers by the U.S. Attorney’s Office in Miami.

“There was a substantial group of investors in South Florida” who lost money, said James S. Cassel, trustee of the 1 GC Collections Creditors’ Liquidating Trust and chairman of the Miami investment banking firm Cassel Salpeter & Co.

Last year around this time, creditors received $112 million thanks to the efforts of a court-appointed legal team that tracked down assets connected to
the companies.

The latest distribution pushes the total sent back to investors up to $124 million, or 44 cents on the dollar, Cassel said Wednesday. Other firms involved in the recovery include Baker Mckenzie, Greenberg Traurig, Development Specialists, Inc., along with special counsel Genovese Joblove & Battista, and Stichter, Riedel, Blain & Postler, P.A,

According to allegations brought by the SEC, 1 Global was a commercial lending business that made the equivalent of payday loans with high interest rates to small businesses. The firm obtained the funds to make the loans from investors nationwide, offering short-term investment contracts. The investors would supposedly receive a proportionate share of the principal and interest payments as the loans to the small businesses were repaid.

1 Global, according to federal authorities, raised money using investment advisers and others who were promised significant commissions.
Many of the investor victims funneled retirement funds by the tens of thousands into the operation, Cassel said.

Last week, the SEC in Miami filed civil charges against three more individuals for illegally selling securities of 1 Global Capital, LLC in unregistered transactions to retail investors while acting as unregistered brokers.

The commission previously charged 1 Global, its owner and others with operating a fraudulent scheme to misappropriate millions of dollars from investors. The SEC also charged 1 Global’s largest sales agent for various registration violations.

The SEC’s latest complaints alleged that Roger E. Dobrovodsky, Robert Todd Seth and Matthew L. Walker were among 1 Global’s top revenue producers, cumulatively selling more than $21 million in unregistered transactions to many retail investors, according to a statement.

According to civil complaints filed by the commission, the three men marketed 1 Global securities to investors “as a safe alternative to the stock
market and reaped hundreds of thousands of dollars in commissions on their sales even though they were not registered as broker-dealers or associated with registered broker-dealers.”

 

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Alta Equipment Company acquired Flagler

  • BackgroundFlaglerCE Holdings, LLC (“Flagler”), founded in 2008 and based in Tampa, FL, engages in the sale, rental, and servicing of heavy construction equipment.  Flagler has the exclusive rights to distribute Volvo Construction Equipment in the state of Florida.  Flagler operates six main branches across Florida.
  • Cassel Salpeter:
    • Served as financial advisor to the Company
    • Ran a competitive bidding process amongst a select group of potential buyers, maximizing proceeds for Flagler’s stakeholders
    • Provided assistance throughout all phases of the sale process
  • Challenges:
    • Distressed operations with short timeline to close the deal
    • Multi-constituent transaction that required the successful funding of a Special Purpose Acquisition Company (SPAC)
  • Outcome:  On February 14, 2020, Alta Equipment Company acquired Flagler.
    • Alta Equipment Group Inc. owns and operates integrated equipment dealership platforms in the U.S.  Alta Equipment Company merged with B. Riley Principal Merger Corp., a SPAC, and changed its name to Alta Equipment Group Inc.

Westchester General Hospital acquired by Sanitas

  • Background:Westchester General Hospital, Inc. (“Westchester”), founded in 1967 and based in Miami, FL, is a 125-bed, family-owned acute care hospital providing quality, patient-centered care.  Westchester also helped develop a graduate medical education program that has trained hundreds of physicians who serve across the nation.
  • Cassel Salpeter:
    • Served as financial advisor to the Company
    • Conducted a robust sales process, identifying and contacting over 100 strategic and financial parties
    • Successfully identified an international buyer that was looking to expand their footprint in Florida
  • Challenges:
    • Distressed operations with negative cash flow
    • Ensuring a smooth transaction while dealing with the negative impacts of the COVID-19 pandemic
    • Navigating the ever-changing Paycheck Protection Program  and CARES Act guidelines relating to mergers and acquisitions
  • Outcome: In October 2020, Westchester was acquired by Sanitas USA, Inc. a subsidiary of Keralty SAS, an international health enterprise leader in patient-centered care and health outcomes.

Moviefone Assets sold to Born In Cleveland, LLC

  • Background:  Moviefone, a subsidiary of Helios and Matheson Analytics, Inc., is an entertainment information and marketing service that delivers movie showtimes, trailers, TV schedules, streaming information, cast and crew interviews, and editorial coverage.
  • Cassel Salpeter:
    • Served as financial advisor to the Company
    • Conducted a robust sales process, identifying and contacting a broad set of strategic and financial parties
    • Provided assistance throughout all phases of the Chapter 7 Section 363 sales process, due diligence, and auctions
  • Challenges:
    • Moviefone was losing value over time due to limited attention and resources; the assets needed to be sold in a short time frame in order to preserve value
    • Limited information and resources available at the Company
    • Maximizing the value of the estate during a global pandemic
  • Outcome:  On March 19, 2020, the court approved the sale of the Moviefone assets to Born In Cleveland, LLC.  Additional assets were also sold as part of the bankruptcy sales process.

Drawing on brand loyalty can help ensure your company’s survival | Opinion

It’s going to be a long winter. Even with a successful vaccine, normalcy may be as far away as next summer.

Middle market companies can learn from a recent CBS news story about the famous Strand bookstore in New York City. The struggling independent bookstore turned to social media to highlight its economic plight, successfully motivating a cavalry of support from loyal and new customers, and even some celebrities. With many businesses facing tough choices right now, finding new ways to tap into customer loyalty and secure new clients, while keeping people comfortable doing business with you, is critical to survival and success.

Here’s what to consider:

IS THERE A PATH FORWARD?

Most middle market businesses have already belt-tightened on their expenses, sought capital, and right-sized. Now, it’s once again time to project revenues, expenses, and capital needs for the next six to 12 months and pursue any existing government aid, or new aid that might become available. If you do not see a clear path forward, seek a buyer or a capital partner now. Do not wait. If selling is the only option, position your narrative to explain why your business is a good opportunity. An investment banker can help.

Middle market businesses that do have a path to survival should focus on actively engaging consumers, building client confidence, and tapping into brand loyalty.

Invest in resources that make consumers/clients feel safe doing business with you. Retail outlets and restaurants, for example, can put up plexiglass dividers, secure air purifiers, and/or Far-UVC lighting that may curtail the spread of COVID-19. They should also coach staff on promoting and maintaining social distancing, create or beef up delivery/pickup services, and of course, wear — and even provide — masks and other PPE to employees, guests and customers. Some businesses can set up tents and move merchandise into the open and would do well to invest in outdoor kiosks, awnings and umbrellas, as well as fans or heaters, and move business outside.

You can make other strategic moves, too. Review your product/services line and tailor them to pandemic needs. Seek accommodations with landlords who would rather have some rent than none at all. You can engage real estate consultants to assist in negotiations, while seeking concessions, and also consider collaborations or partnerships that might help.

Most important, do not underestimate the power of drawing on brand loyalty. Like The Strand, use social media and other channels, such as customer lists you may have built, to call for action and help, letting your customers know how much you need and appreciate them. Explain how buying local means revenues stay local, so getting goods and services from you means supporting their community. They will want you around when things get back to normal.

HOLIDAYS MATTER

Many businesses secure a disproportionate amount of their business during the weeks before the holidays. Get ready now. Use messaging to let customers know about the range of extra measures taken to keep them safe. And with many retailers and online businesses already offering bargains, run your own deals now too.

This next COVID phase may be the most challenging yet for business owners. While many middle market companies have already implemented or exhausted traditional cost-cutting and capital-raising efforts, more can be done to keep loyal customers returning and maybe even gain some market share as we get to the other side of this crisis.

James S. Cassel is co-founder and chairman of Cassel Salpeter & Co., LLC, an investment- banking firm with headquarters in Miami that works with middle-market companies. jcassel@casselsalpeter.com or via LinkedIn at  https://www.linkedin.com/in/jamesscassel.

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Cassel Salpeter Aviation Update – 737 Max

With 737 Max Cleared for Takeoff and Covid Vaccine on Horizon, Aviation Industry Slowly on the Verge of U-Shaped Recovery

On November 18th, U.S. regulators (FAA) ruled that the Boeing 737 Max can resume commercial flights with an extensive package of fixes, ending a damaging 20-month hiatus prompted by a pair of fatal crashes. The aircraft’s return will not end the controversy or provide a cash infusion for the company’s suffering bottom line, but it does appear to, in the words of Winston Churchill, at least be the end of the beginning. Following the FAA ruling, various global regulators are expected to follow suit in the coming months.

This is a major milestone for Boeing and an inflection point for the company, though the COVID-19 pandemic has devastated the airline industry, pressuring airlines and lessors to cancel orders for the 737 Max and foiling Boeing’s plans to quickly reverse its losses. The Max’s comeback will be gradual, as it will not fly for some months. Airlines must first train pilots, inspect the jets emerging from long-term desert storage, and complete the FAA’s required repairs before placing the aircraft back into fleet service.

The FAA action is only the first step in certifying 59 airlines/carriers (32 countries) to operate the 387 grounded planes. The FAA orders cover only US domestic flights for the 737 Max jets operated by American, United, and Southwest Airlines; 72 in total. Of the U.S. operators, only American Airlines (AA) has put the Max jets back into its schedule, with flights beginning Dec. 29th on one route: Miami to New York. Flights to or within other countries will need the approval of those individual aviation authorities.

For context, 450 737 Max jets have been built, but not delivered, amounting to billions of dollars in inventory that Boeing hopes to be able to start turning into cash. Bloomberg News reports that nearly a quarter of those 450 Max jets in storage are “white tails,” or planes whose original buyers have backed out, leaving their tails unmarked by airline logos. In total, more than 1,000 Max jet orders have been canceled this year. Additionally, there are about 1,500 single-aisle passenger jets parked by airlines around the world, according to Ascend by Cirium, a research firm that tracks plane usage. That number does not include the grounded 737 Max jets, yet the plane represents more than 25% of the single-aisle planes worldwide since the pandemic broke out.

Boeing’s chief rival Airbus has not been immune to the fallout from the global pandemic, but the fact that its planes were not grounded made it comparatively harder for airlines to abandon their orders. In fact, Airbus has told its suppliers to be ready to ramp up production on its A320neo family of jets to 47-a-month by the second half of 2021, compared to 40 currently. Airbus had 11 new orders in October across its portfolio, compared to zero at Boeing. The narrow-body jet market is expected to recover faster from the pandemic because the planes are primarily used on shorter-haul flights. As of the end of Q3 2020, Airbus had a commanding 64% share of that market, according to Vertical Research Partners analyst Rob Stallard.

For Boeing, which faces at least $20 billion in Max-related costs, the crisis has become one of the worst in the company’s century-long history. Now, with the collapse in air travel, airlines that had been clamoring for the more efficient Boeing jets (15% more fuel efficient) suddenly are fighting for survival and looking to postpone deliveries. Boeing executives warned last month that the company will burn more cash than it generates until 2022, and that it will take at least a year beyond that to clear the mothballed Max aircraft out of its inventory. The bottom line is that the industry is slowly on the verge of a U-shaped recovery, which will be much needed for the airlines and its related ecosystem of suppliers, MRO (repair shops), distributors, and other players, in this critical sector of the US and global economy.

Q3 2020 Healthcare Investment Banking Report