Atlas Shrugged
A conviction for securities fraud drew disbarment from the New York Appellate Division for the Second Judicial Department
From 2014 through 2018, the respondent was a partner at law firm #1 and acted as outside counsel for 1 Global Capital (hereinafter 1GC). 1GC operated as a lender to merchants, providing short-term loans referred to as merchant cash advance loans. The respondent learned that 1GC obtained funds from potential investors, also referred to as “lenders” or “syndicate partners.” Investors, investment advisors, and regulators began to question whether 1GC was offering or selling a securitywithout registering the investment offeringwith the United States Securities and Exchange Commission in violation of federal and state securities laws. The respondent knew that if 1GC’s investment offering was considered a security it would undermine 1GC’s ability to raise funds from retail investors and continue operations without substantial additional expenses and reporting requirements. Complying with securities laws would also limit the profit of 1GC executives and the respondent. The Chairman of 1GC (hereinafter Chairman), to whom the respondent reported, “made clear” to the respondent that he wanted “legal cover,” even if false, in order to continue operating 1GC without complying with the registration requirements of the federal and state securities laws.
In late 2015 and early 2016, at the request of the Chairman, the respondent arranged for another attorney, who had expertise in securities law, to assess the 1GC investment offering. This attorney determined that the 1GC investment offering was a security and that its offer and sale without registration was in violation of federal and state laws. The Chairman rejected this attorney’s assessment and requested that the respondent draft an opinion letter indicating that the 1GC offering was not a security and not subject to the securities law or its registration requirements. The respondent issued an opinion letter dated May 17, 2016, containing false information concerning the nature of 1GC’s investment offering in an effort to give 1GC and its employees and agents legal cover to avoid application of the federal and state securities laws.
The respondent became aware of two opinion letters dated June 20, 2016, and July 6, 2016, authored by another law firm unrelated to the respondent that were provided to 1GC. The June 2016 letter stated, inter alia, that 1GC’s investment offering was a security and that the interest rate charged by 1GC likely violated Florida’s usury laws. The July 2016 letter provided guidance on how 1GC could complywith the federal securities law, which would include, among other things, a six-month cessation of capital raising activities and thereafter, only offering the investment to
“accredited” investors, as opposed to retail investors. The respondent admitted that he knew that the Chairman had no intention of following the legal advice contained in the June and July 2016 opinion letters.
Thereafter, the respondent authored a second opinion letter dated August 25, 2016, which repeated the false and misleading statements made in his May 17, 2016 opinion letter. The respondent admitted that he knew that this letter would be used by1GC and its employees and agents to continue to raise money “illegally” and to address concerns raised by investors.
At or around the time that the respondent drafted the two false opinion letters, and thereafter, he received payments totaling approximately$627,000, which the respondent understood to constitute a percentage of the commissions received from the money raised by 1GC from new investors. The approximate $627,000 in payments were made to the respondent’s personal account and were not disclosed to law firm #1.
(Mike Frisch)