Wednesday, April 21, 2010

White Collar and Securities: University of Miami Donor Charged with Fraud

Federal prosecutors in New Jersey have charged a Miami Beach business man with operating a $900 million investment fraud. Prosecutors allege that Nevin Shapiro operated a Ponzi scheme that bilked his friends and acquaintances.

The complaint alleges that Shapiro obtained investments for his company, Capitol Investments, USA. Prosecutors contend that Shapiro told prospective investors that the investment monies would be used to fund a wholesale grocery business. He told them that returns on the investments could reach 26%. Moreover, Shapiro allegedly showed investors invoices and purchase orders for sales that never took place.

Because Shapiro's alleged victims were friends and acquaintances, the scheme is commonly known as an "affinity fraud." In such a scam the victims and perpetrator have some connection or "affinity."

As happens in all Ponzi schemes, Shapiro used a portion of new investment funds to pay interest and principal to earlier investors. Additionally, the government alleges that Shapiro used the proceeds of the fraud to make numerous philanthropic donations and spent over $35 million and $38 million of stolen fraud for personal purposes. The government estimates the total loss to investors at $80 million. The higher figure is a compilation based on purported reinvestment of investors' principal.
Prosecutors allege that Shapiro donated $150,000 to the University of Miami athletic programs. As a result, the University named a student athlete lounge after him. Additionally, the government claims that Shapiro spent $400,000 on courtside seats for Miami Heat basketball games.

The government has charged Shapiro with one count of securities fraud and one count of money laundering. The case cannot proceed to trial unless the government indicts Shapiro. However, Shapiro can plead to charges in the complaint if he waives indictment. That could result if he reaches a plea agreement with the government. The Securities and Exchange Commission has filed a companion civil enforcement action against Shapiro.

For more information about the charges against Shapiro, please see the Reuters article, "US Charges Miami Sports Donor with $900 Million Fraud,", and The Miami Herald, "UM Booster Accused of Food Ponzi," April 22, 2010, p. A1.

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