June 24 (Bloomberg) -- U.S. prosecutors in New York charged Raffaello Follieri with committing wire fraud and money laundering, saying he ran a fraudulent real estate investment scheme that bilked investors out of millions of dollars.

Follieri's company, Follieri Group LLC, was sued in April by Ron Burkle's Los Angeles-based Yucaipa Cos., which claimed he used part of a $55.6 million investment in a joint venture with the Yucaipa Corporate Initiatives Fund I to finance a lifestyle that included private jets, a penthouse and trips to Europe with actress Anne Hathaway, his girlfriend at the time.

Follieri, of Foggia, Italy, falsely claimed to investors to have an agreement with the Vatican to dispose of church properties, giving him an inside track on buying the real estate, according to a criminal complaint by U.S. Attorney Michael Garcia unsealed today. He was arrested this morning.

``Follieri told the principal investor that because of his connections he essentially had a right of first refusal to purchase any properties that the Catholic Church would be selling in the United States,'' FBI Special Agent Theodore Cacioppi said in an affidavit attached to the complaint. ``In reality, Follieri and those working for him submitted bids for the purchase of properties in the United States like any third-party investor, and often did not pay below the fair market value.''

The complaint doesn't name the principal investor.

$21 Million Bond

At a hearing today in federal court in Manhattan, U.S. Magistrate Judge Henry Pitman imposed a bail bond of $21 million, secured by $16 million in cash and property and requiring the signatures of five other people.

Follieri is also confined to his Trump Tower apartment except for legal, medical and religious reasons. He's not allowed to leave Manhattan.

Follieri didn't put up the bail immediately and is still in custody. ``This is one of the stiffest bail packages I've ever seen,'' said Follieri's attorney Flora Edwards, who declined to comment on the charges after the hearing.

Assistant U.S. Attorney Reed M. Brodsky argued that Follieri is a flight risk and should be detained without bail because of the penalties he faces and because he has no ties to the U.S.

``He has expertise in hiding and concealing money,'' Brodsky said. ``In short, Your Honor, he is a con man and he was able to defraud a lot of people out of a lot of money over a long period of time.''

Investors' Losses

Brodsky said that the current estimate of how much investors lost to Follieri was between $2.5 million and $6 million. Edwards responded that ``it's at most $3 million based on the complaint.''

Pitman noted that the government found one of Follieri's accounts had 10 million euros ($15.6 million). When he was arrested today, Follieri had a briefcase with $15,000 in cash in it, Brodsky said. Follieri tested positive for opiates, Brodsky said.

Edwards, Follieri's lawyer, told the judge that her client's mother is in the U.S. being treated at Cornell Medical Center in New York. She didn't specify the ailment.

``This is a man with absolutely no criminal record here or anywhere else,'' Edwards said. ``There's no basis for finding that he's a risk for flight.''

Follieri, who wore blue jeans and a white shirt under a blue pullover at the hearing, shook his head often when Brodsky spoke.

``We paid all that,'' he called out when Brodsky said he owed a $500,000 judgment to American Express Co. for unpaid credit-card bills and another unspecified amount to a private airline.

Flowers and Dog Walkers

Pitman, the magistrate judge, asked Edwards to keep her client from speaking out.

From 2005 through 2007, Follieri spent money obtained from the ``principal investor'' on a $37,000-a-month apartment overlooking Central Park, vacations, ``flowers, cosmetics, clothes, wine, expensive dinners, dog walking services and orthodontist expenses,'' according to the complaint.

Follieri and Hathaway, star of ``The Devil Wears Prada,'' broke up earlier this month after dating for four years, People.com reported, citing an unnamed person. Hathaway's publicist, Stephen Huvane of PMK/HBH Inc., in Los Angeles, did not immediately return a telephone message seeking comment.

Follieri is charged in a 12-count indictment with conspiracy, mail fraud and money laundering. Under federal sentencing guidelines he faces 87 to 108 months in prison if found guilty by a judge or jury, and 63 to 78 months if he pleads guilty, Brodsky said.

The case is U.S. v. Raffaello Follieri, U.S. Southern District of New York.

To contact the reporters on this story: Sharon L. Lynch in New York at sllynch@bloomberg.net; Thom Weidlich in New York federal court at tweidlich@bloomberg.net.

Last Updated: June 24, 2008 18:11 EDT