Food Chain: SEC Sues Grocery-Based Ponzi Scheme
On April 21, the SEC filed a complaint against a Miami business man for allegedly creating a $900 million offering fraud and Ponzi scheme to defraud investors. The Commission claims that Nevin K. Shapiro told investors their money would go to a grocery diversion company that would provide a risk free investment and earn high profits. Instead, the money went to the oh, so stereotypical, mansion, yachts and high livin'.
According to the press release from the SEC, the Commission alleges Shapiro founded Capitol Investments USA, Inc., the company he told investors would use money to purchase groceries in an area where they were relatively cheap and then re-sell them in a higher cost location for a profit. He claimed the proposition was no-risk (a red flag if there ever was one) and would earn a return of 26% a year.
Instead of using the money to actually buy the goods, by late 2004 Shapiro was operating at a loss and had almost no operations by 2005. He then allegedly shifted into classic Ponzi scheme mode and began using funds from new investors to pay principal and interest to earlier investors. Specifically, the SEC alleges that Shapiro, among other illegal deeds, falsely told investors their funds would be used as short-term financing to purchase and resell groceries for Capitol's business and falsely told investors that Capitol would pay the principal and interest from the profits it received when it resold the goods.
Instead, the complaint claims the money went to other businesses such as real estate ventures, as well as boats, cars, homes, expensive clothes, high-stakes gambling, and season tickets to "premium sporting events." Shapiro additionally used nearly $13 million of the investor funds to pay large undisclosed commissions to individuals who attracted other investors.
The SEC has charged Shapiro with violating the antifraud provisions of the federal securities laws. The complaint seeks a permanent injunction, sworn accounting, disgorgement of illegal profits, and financial penalties.
Mr. Shapiro surrendered to authorities on April 21.
- SEC Charges Prominent Miami Beach Businessman in $900 Million Ponzi Scheme (SEC)
- Complaint, SEC v. Nevin K. Shapiro (pdf, SEC)
- What is a Ponzi Scheme? (FindLaw's Common Law)
- Disbarred Fla. Attorney Scott Rothstein's Guilty Plea in Ponzi Scheme (FindLaw's Courtside)
- Fraud (provided by Muller & Sommerville, P.A.)
- White Collar Crime News and Cases (provided by Law Office of Ramon de la Cabada, P.A.)
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