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Capitol Investments’ Chief Charged in Ponzi Scheme

Nevin Shapiro, chief executive officer of Capitol Investments USA Inc., defrauded investors of at least $80 million to fund his lavish lifestyle after raising $880 million in a Ponzi scheme, U.S. prosecutors charged.

Shapiro, 41, raised money from at least 60 investors from January 2005 to November 2009 to finance Capitol, a Miami Beach- based wholesale grocery distribution business, authorities said in a complaint unsealed today in federal court in Newark, New Jersey. Capitol and Shapiro “had virtually no legitimate business during this time,” the government said.

Shapiro used new investor money to pay existing investors in the Ponzi scheme, while taking $35 million for himself, according to the Federal Bureau of Investigation complaint. He paid millions of dollars in debts from illegal sports bets, bought $400,000 in floor seats to Miami Heat professional basketball games and bought diamond-studded handcuffs that he gave to a “prominent professional athlete,” the FBI said.

“Nevin Shapiro is charged with tricking investors with false documents and false promises,” Paul Fishman, the U.S. attorney for New Jersey, said in a statement. “He spent tens of millions of their money on gambling debts, lavish gifts and a luxury lifestyle built on a house of cards.”

Shapiro, who was also sued by the Securities and Exchange Commission, surrendered to authorities after being charged with securities fraud and money laundering. He faces up to 20 years in prison on the fraud charge and 10 years on the money laundering charge.

$10 Million Bail Package

Shapiro made an initial appearance in federal court in Newark, where U.S. Magistrate Judge Madeline Cox Arleo ordered him detained while court officials review a proposed $10 million bail package. Defense lawyer Michael Tein left the courtroom after the hearing without commenting.

The FBI said Shapiro bought a $5.3 million house in Miami Beach, made monthly payments on a $1.5 million Riviera yacht and leased a Mercedes-Benz. He also gave $150,000 to fund a Nevin Shapiro Student-Athlete Lounge at a university, authorities said. The University of Miami has such a lounge.

“This case is a perfect example of greed run amok,” said Michael B. Ward, the top FBI agent in New Jersey, in a statement. “Mr. Shapiro allegedly preyed upon unsuspecting investors looking to secure a safe place to maximize their investments. Instead, their futures may have been irrevocably damaged.”

‘Virtually No Income’

Shapiro promised investors returns of 10 percent to 26 percent in a business that he fraudulently claimed had tens of millions of dollars in annual sales, according to the FBI.

In fact, “Shapiro and Capitol had virtually no income-generating operations at all,” the FBI said.

The SEC, which estimated he raised about $900 million, said he used $769 million of incoming funds to pay returns to earlier investors. The regulator wants him to forfeit ill-gotten gains and pay unspecified fines.

Investors forced Capitol Investments into involuntary bankruptcy, the FBI said. The firm was a so-called grocery diverter, which buys low-priced food in one region and sells it for profit elsewhere, the SEC said.

The case is USA v. Shapiro, 10-cr-8082, U.S. District Court, District of New Jersey (Newark).

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