Florida Man to Plead Guilty in $880 Million Fraud

Nevin Shapiro, the former owner of Capitol Investments USA Inc. accused of leading an $880 million Ponzi scheme, is to plead guilty, court papers showed.

Shapiro, 41, of Miami Beach, Florida, is charged with defrauding more than 60 investors in his bogus wholesale grocery distribution business. He is accused of using new investors’ money to pay earlier ones, as well as to fund his lavish lifestyle.

Prosecutors said Shapiro stole $35 million to pay illegal gambling debts and make payments on a $5.3 million house, a $1.5 million yacht, a Mercedes-Benz and seats to Miami Heat basketball games. He also bought a pair of diamond-studded handcuffs to give to a prominent professional athlete and donated $150,000 to the University of Miami for an athletic lounge, prosecutors said.

Shapiro, who pleaded not guilty on July 22, is scheduled for a “plea agreement hearing” on Sept. 15 in federal court in Newark, New Jersey, where he was indicted, according to an Aug. 20 court docket entry. The entry doesn’t specify what charges Shapiro will admit.

Rebekah Carmichael, a spokeswoman for U.S. Attorney Paul Fishman, declined to comment. Shapiro’s attorney, Maria E. Perez, didn’t immediately return a call seeking comment.

Shapiro was accused in a July 14 indictment of conspiracy, securities fraud, two counts of wire fraud and two counts of money laundering. The securities and wire fraud counts each carry prison terms of as long as 20 years.

Shapiro and his co-conspirators promised investors from January 2005 to November 2009 that their money would fund his grocery distribution business, according to the indictment.

‘Ponzi Scheme’

“Capitol had virtually no active wholesale grocery business,” according to the indictment. “Instead, Capitol operated an investment scheme commonly known as a ‘Ponzi’ scheme, in which new investors’ funds are utilized to pay previous investors.”

Shapiro has been in jail since surrendering to the Federal Bureau of Investigation and the Internal Revenue Service on April 21. His bail was set at $10 million.

The U.S. Securities and Exchange Commission also sued Shapiro.

“Shapiro enjoyed a high profile in South Florida, bolstered by his lavish spending, his association with professional athletes through a sports representation company he established, and extravagant donations to charities -- all ultimately funded with investors’ money,” according to the SEC complaint in federal court in Miami.

Promised Returns

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.

Shapiro and Capitol actually “had virtually no income-generating operations at all,” according to the FBI.

The SEC, which estimated Shapiro 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.

Shapiro also paid $13 million in undisclosed commissions and fees to individuals who attracted other investors, according to the SEC.

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

On Aug. 5, U.S. District Judge Cecilia Altonaga entered a default judgment against Shapiro for failing to answer the SEC complaint. On Aug. 17, Perez asked the judge to lift the judgment, saying Shapiro had been in the Hudson County Jail in Kearny, New Jersey, and couldn’t afford a lawyer.

The criminal case is U.S. v. Shapiro, 10-cr-00471, U.S. District Court, District of New Jersey (Newark). The SEC case is Securities and Exchange Commission v. Nevin K. Shapiro, 10-cv-21281, U.S. District Court, Southern District of Florida (Miami).

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