The Securities and Exchange Commission banned an investment advisor from the industry for recommending and selling unregistered 1 Global Capital securities. 1 Global is at the center of a massive fraud scheme that raised more than $320 million in illicit securities from thousands of investors.
Michael Pellegrino, co-founder and head of SEC-registered Goldstone Financial Group, was unaware that 1 Global Capital was a fraud when recommending its notes to clients, Per the SEC’s settlement order with Pellegrino and his brother Anthony PellegrinoCo-founder of Goldstone.
But both did not disclose that according to the commission, when clients invested in notes of 1 Global, they were getting referral fees.
Compromise 1 is the latest development in the Global Capital saga, in which former CEO Carl Ruderman was accused in 2018. 1 Global was reportedly a merchant lender that provided short-term loans to small and medium-sized businesses as an alternative to traditional bank loans. , According to the SEC, the company claimed that it earned $1.30 to $1.40 for every dollar invested in these cash advances, but the investors never received any interest payments and eventually lost their principal.
While 1 Global said that most investors’ funds were paying for these loans, in reality Ruderman and the firm used much of the money raised for other purposes. The SEC said Ruderman misappropriated at least $32 million for his own use, including vacations to Greece, monthly payments for Mercedes Benz and American Express cards, salaries for Ruderman’s domestic workers and for his son. $1 million is involved in investing in cryptocurrencies.
Last August, two Florida securities attorneys and the former chief operating officer of 1 Global were sentenced for participating in fraud, With former COO Stephen Schwartz Ordered to serve 24 months and pay more than $36 million in restitution to victims. in January 2020, Form 1 Global CFO Alan Hyde Sentenced to five years in prison and ordered to pay more than $57 million.
To drive the plan, 1 Global invited dozens of outside sales agents and firms to sell its product, including Pellegrino, according to the commission. 1 Global’s external securities attorney allegedly lied to the Goldstone pair, saying that 1 Global’s performance returns were validated by an independent accounting firm.
According to the commission, the Pellegrino brothers tried to investigate 1 Global’s offerings through Internet research about their executives and in conversations with 1 Global’s director of business development.
Michael Pellegrino was a broker/dealer affiliated with Taylor Capital Management, As per their BrokerCheck Profile (though not named in the b/d SEC order). After review, B/D determined that 1 Global Investments were not securities and approved Pellegrino to sell investments only as an outside business activity.
Later, Pellegrino marketed 1 Global Investments to clients via email, telephone calls and in-person dinners, with Michael generally recommending a 10–20% allocation to investors’ portfolios. As of June 2018, the duo had sold approximately $18 million of 1 GlobalNote to approximately 445 customers nationwide, totaling approximately $800,000 in referral fees.
But Goldstone’s Form ADV and a disclosure document provided to 1 global investors did not disclose the fees Pellegrino received for referring clients to unregistered securities.
After 1 Global filed for bankruptcy, Goldstone established a settlement with its investors to fund the funds, returning all referral fees and an additional $700,000; Anthony Pellegrino offered investors $1.3 million from his personal fund, and Michael Pellegrino stepped down as Goldstone’s CCO in August 2018.
Goldstone and the Pellegrino brothers did not accept or reject the SEC’s findings, but agreed to hire an independent advisor to oversee their practices. The SEC banned Michael Pellegrino, while issuing a formal condemnation against Anthony Pellegrino. Firm and the two brothers were each asked to pay a five-figure penalty.
Another 1 global promoter, some registered and some not, has also been caught as a result of this scheme. In March 2021, SEC charges four persons 1 global with the sale of at least $24 million in unregistered securities, while also charged commission One Tenn. based unregistered broker To raise over $3.5 million in commissions after selling 1 global securities to over 600 investors.
Last December, the SEC ordered Matthew L. Walker, managing partner and chief compliance officer of Pinnacle Plus Wealth Management, a state-registered consultant in Kansas, five years after settling Walker’s allegations, raised $11 million for 1 Global in nearly 140 transactions. with investors, and through a company that raised another $9 million in 100 transactions.