SEC Charges Former CFO with Defrauding Thousands of Investors

The SEC has charged Alan Heide, the former chief financial officer of bankrupt cash advance company 1 Global Capital, with defrauding thousands of retail investors. The Florida-based firm is alleged to have fraudulently raised more than $322 million from 3,600 investors between 2014 and 2018.

The regulator previously charged the company’s former CEO Carl Ruderman with fraud and charged Henry Wieniewitz, III for his allegedly unlawful sales of 1 Global securities. Ruderman and Wieniewitz have consented to final judgments.

According to the SEC’s complaint, 1 Global promised investors profits from its short-term cash advances to businesses. However, the company instead used investor funds to pay for operating expenses and for Ruderman’s “lavish expenses,” such as a luxury vacation to Greece and monthly payments for his Mercedes-Benz.

“Heide’s misrepresentations gave false comfort to investors, allowing them to be duped to invest in 1 Global’s securities,” Eric Bustillo, director of the SEC’s Miami regional office, said in a statement. “We allege that as 1 Global’s CFO, Heide played a significant role in 1 Global’s fraud by overstating the value of investors’ accounts and their rates of return and falsely representing the role of an auditor.”

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The SEC alleges that for nine months, Heide regularly signed investors’ monthly account statements that he knew overstated the value of their accounts, and falsely represented that the firm had an independent auditor that endorsed the company’s method of calculating investor returns.

“Heide knew 1 Global’s financial condition was depleted due to Ruderman and the company’s misuse of investor funds,” said the complaint.

Heide has been charged with violations of the antifraud provisions of the federal securities laws, and the SEC is seeking a court-ordered injunction and a financial penalty. Heide agreed to settle the SEC’s charges as to liability, without admitting or denying the allegations, and agreed to be subject to an injunction, with the court to determine the penalty amount at a later date.

It is the third action the SEC has brought against 1 Global for fraud. In the first case, Ruderman consented to a final judgment against him in which he was held liable for disgorgement of approximately $32 million in ill-gotten gains, and a civil penalty of $15 million. As part of the judgment, Ruderman agreed to turn over approximately $750,000 in cash, as well as 50% of the equity in his multimillion-dollar condominium.

Last month, the SEC filed a settled action charging Wieniewitz with securities and broker-dealer registration violations. Wieniewitz agreed to a final judgment holding him and his former company jointly and severally liable for more than $3.5 million in disgorgement and a $150,000 civil penalty.

“Although 1 Global purported to limit its offering to sophisticated or qualified investors, in reality the company and its sales agents mass marketed the investment to the public through brochures, flyers, seminars, and meetings,” said the complaint. “1 Global never checked to ensure that any of its investors were sophisticated, and although the company had a stated $25,000 minimum investment, the company sometimes waived that requirement and put no restrictions on who sales agents could offer the investment to.”

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Tags: 1 Global Capital, Alan Heide, Fraud, SEC

Walgreen Co. is being sued for $300 million by a group of its 401(k) plan participants who allege that the company breached its fiduciary duties by adding to the plan a group of “poorly performing funds” and keeping them for nearly a decade despite their lackluster returns.

The complaint, which was filed in the US District Court of Northern Illinois, alleges Walgreens failed to remove from its employee retirement plan a suite of 10 Northern Trust target retirement date funds that underperformed their investment benchmarks and other similar collective investment funds significantly for nearly a decade. The lawsuit alleges that the Walgreen Profit-Sharing Retirement Plan has cost its employees millions of dollars in retirement savings.

“Walgreen’s decision to select the Northern Trust Funds resulted in a swift and devastating blow to participants’ retirement accounts,” said the complaint, which also said that during the first two years the plan offered the funds, they underperformed relative to the comparator funds by more than $200 million.

“To this day, the investment performance of each of the 10 Northern Trust Funds has continued its downward spiral to the bottom of their respective Morningstar Category for the preceding three-and five-year periods,” said the complaint. “Most of the Northern Trust Funds have performed worse than between 70% and 95% of the hundreds of funds within their respective Morningstar categories for the past three-year and five-year periods.”

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According to law firm Sanford Heisler Sharp, which is representing the plaintiffs, the plan participants invested more than $3 billion in the 10 target retirement date funds, which made up nearly one-third of the plan’s assets.

“ERISA’s fiduciary standards are strict and exacting,” David Sanford, counsel for the plaintiffs, said in a statement. “Since 2013, Walgreen has offered its employees these poor-performing target retirement date options which have been highly detrimental to the retirement savings of plan participants. Walgreen and the plan committees should be held to the highest standard as fiduciaries.”

The complaint also said that Walgreen should have known the funds were underperforming, but didn’t because the company failed to prudently monitor the investment performance of the plan options as required by ERISA.

“A reasonable investigation by the Walgreen defendants would have revealed the funds’ chronic underperformance and prompted Walgreen to remove and replace them with superior options,” said the complaint.

The plaintiffs are seeking approximately $300 million for financial losses to plan participants and beneficiaries, divestiture of imprudent investments, and the removal of the fiduciaries who the suit alleges violated their duties under ERISA.

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Tags: 401(k) Plan, ERISA, Lawsuits, Pension, Walgreens