Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Wednesday, April 21, 2010

SEC Charges Yet Another Ponzi Scheme

The SEC filed an injunctive action against Nevin K. Shapiro, the president, Chief Executive Officer and sole shareholder of Capitol Investments USA Inc., (Capitol), a Miami Beach, Florida-based grocery diverter, alleging that he conducted a $900 million fraud targeting more than 60 investors nationwide.

The SEC's complaint alleges that from February 2003 through November 2009, Shapiro offered promissory notes claiming annual returns of 10 to 26% purportedly backed by purchase orders and receivables generated by Capitol's food brokerage business. In reality, Capitol was operating at a loss since late 2004 with virtually no operations by 2005. Beginning in January 2005 through November 2009, Shapiro operated a Ponzi scheme using new investor funds to pay principal and interest to earlier investors.

The SEC's Complaint further alleges that Shapiro also misappropriated at least $38 million of investor funds to finance outside business ventures unrelated to the grocery business, including a sport representation business and real estate ventures, and to fund his lavish lifestyle. He also used investor funds to pay large commissions to individuals who attracted additional investors.

The SEC seeks a permanent injunction, sworn accounting, disgorgement of ill-gotten gains with prejudgment interest, and a civil money penalty against the defendant. The SEC coordinated the filing of these charges with the United States Attorney for the District of New Jersey who charged Shapiro today with securities fraud and money laundering. Shapiro surrendered this morning to special agents of the Federal Bureau of Investigation and the Internal Revenue Service criminal investigation unit.

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