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Cosmo Ponzi Scheme Took in $370 Million, U.S. Says
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Nicholas Cosmo, founder of Agape World Inc. in Hauppauge, New York, swindled investors out of more than $370 million and used the money to pay for limousines, fund a baseball league and pay off a restitution order from an earlier fraud, U.S. authorities said.

Cosmo, 37, operated a Ponzi scheme at least from October 2003 to December 2008 that victimized more than 1,500 individual investors, putting the money into Agape World bank accounts, according to a 51-page affidavit by U.S. Postal Inspector Richard Cinnamo detailing the government’s allegations.

“By paying investors partial returns -- represented to be profits from interest-generating loans -- Cosmo persuaded current investors to invest additional funds in Agape and AMA, and also encouraged new victims to invest in the two companies,” U.S. Attorney Benton J. Campbell’s office said in a statement today.

AMA is Agape Merchant Advance LLC, another Cosmo company involved in the alleged fraud. Cosmo is scheduled to be arraigned later today before U.S. Magistrate Judge E. Thomas Boyle in U.S. District Court in Central Islip, New York. His lawyers, Steven D. Feldman and Arthur G. Jakoby, declined to comment on the charges.

Cosmo, arrested after he surrendered yesterday in Hicksville, New York, claimed he was putting investors’ money into bridge loans to businesses, according to the Cinnamo affidavit, which was unsealed today. Just $746,000 of the money was found in the bank accounts last week, Cinnamo said. Less than $10 million was loaned out, the alleged business of Agape World.

Rash of Arrests

Instead, more than $100 million was invested in commodity futures trading accounts, with losses of about $80 million, according to Cinnamo.

Cosmo’s arrest yesterday was followed today by the arrest of Arthur Nadel, 76, a Florida hedge-fund adviser who disappeared 13 days ago, and was charged with defrauding investors of tens of millions of dollars.

Nadel’s fraud may have been uncovered because of the unrelated arrest on Dec. 11 of fund manager Bernard Madoff for duping investors out of $50 billion, the FBI said in a criminal complaint. Madoff’s victims range from New York University and Boston philanthropist Carl Shapiro to retired people around the world.

In a Ponzi scheme, the operator takes in money from investors, paying off the first investors with funds raised from later recruits. Some of early investors may get their money back. Eventually the fraud collapses when the operator can’t find enough new investors to pay off commitments to the others.

Cosmo’s Recruiters

In his affidavit, Cinnamo said he was able to identify 10 of the recruiters Cosmo used to get investors. Cosmo paid the recruiters, many of whom were ex-convicts with records including robbery and heroin importation, $55 million from the scheme.

One investor told Cinnamo that one of his nephews quit his job as a mail carrier to make more money as a broker for Agape. The former mailman was now living in a $2.5 million house, he said.

Investors were promised returns as high as 80 percent. They were told their money would be used to fund secured loans to businesses, at interest rates from 6 percent to 16 percent, over periods of up to 90 days, according to the affidavit.

Cosmo did make a few commercial loans, Cinnamo said, at interest rates far below those he promised investors.

The mailman-turned-broker, identified only as “R-2”, contacted Cinnamo and said he thought he was investigating the company. R-2 discouraged Cinnamo from investing.

Not a Good Time

“Now isn’t a good time,” R-2 said. “Not that it’s a scam or anything.”

Cosmo used more than $212,000 of the investors’ money to pay off the court-ordered restitution from his earlier conviction. He used more than $100,000 of the investors’ money to pay personal expenses, including hotel bills and limousine fees. And he invested $300,000 in a Seaford, New York-based baseball league, National Tournament Baseball, of which he is the president, according to Cinnamo.

In 1997, while working as a stockbroker at Continental Broker-Dealer Corp. in Carle Place, New York, Cosmo was accused of misappropriating funds, according to court records. He pleaded guilty to a single federal charge in 1999 and was sentenced to serve 21 months in prison and pay $177,000 in restitution. He was also ordered to undergo “extensive gambling therapy” while in prison, according to court records.

In an October interview with Bloomberg at his Hauppauge office, Cosmo said he wasn’t operating a Ponzi scheme after being asked about his prior federal conviction.

In that interview, Cosmo handed a Bloomberg reporter a reprint of a page from Entrepreneur Magazine’s May 2008 issue, which listed Agape World as number 73 in its HOT 100 fastest- growing businesses. Cosmo told the magazine he began the business with one employee in August 1999. Actually, he was imprisoned at Allenwood that summer.

The case is U.S. v. Cosmo, U.S. District Court, Eastern District of New York (Brooklyn).

Source >  Bloomberg | Jan 27

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