SEC Charges Prominent Miami Beach Businessman in Alleged $900 Million Ponzi Scheme

Washington, D.C.–(ENEWSPF)–April 21, 2010 — The Securities and Exchange Commission today charged a prominent Miami Beach-based businessman and philanthropist with fraud for orchestrating a $900 million offering fraud and Ponzi scheme.

The SEC alleges that Nevin K. Shapiro, the founder and president of Capitol Investments USA, Inc., sold investors securities that he claimed would fund Capitol’s grocery diverting business. Shapiro told investors that the securities were risk-free with rates of return as high as 26 percent annually. Instead, Shapiro was actually conducting a Ponzi scheme and illegally using investor money to pay for other unrelated business ventures and fund his own lavish lifestyle. When investors questioned Capitol’s business, Shapiro showed them fabricated invoices and purchase orders for nonexistent sales.

“Shapiro lured investors by falsely touting Capitol’s securities as a risk-free investment with extraordinarily high returns,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. “He used his prominence and prestige to gain investors’ trust in funding Capitol’s grocery diverting business, but behind their backs he diverted their money to enrich himself.”

Grocery diverters like Capitol purchase lower-priced groceries in one region and resell them for a profit to another region where prices are higher. According to the SEC’s complaint, filed in U.S. District Court for the Southern District of Florida, Shapiro used his business relationships and word-of-mouth to solicit investors and sell them short-term promissory notes.

According to the SEC’s complaint, Capitol was operating at a loss by late 2004 and had virtually no operations by 2005 when, in a classic Ponzi scheme manner, Shapiro began using funds from new investors to pay principal and interest to earlier investors.

Among the alleged misrepresentations that Shapiro made to investors:

  • He falsely told investors their funds would be used as short-term financing to purchase and resell groceries for Capitol’s business.
  • He falsely touted Capitol’s financial success as well as his own.
  • He falsely assured investors that their principal was secure because Capitol would not broker the sale of the goods without first obtaining a purchase order from a buyer.
  • He falsely told investors that Capitol would pay the principal and interest from the profits it received when it resold the goods.

The SEC’s complaint further alleges that Shapiro misappropriated at least $38 million of investor funds to enrich himself and finance outside business activities unrelated to the grocery business, including a sport representation business and real estate ventures. His lavish lifestyle includes a $5 million home in Miami Beach, a $1 million boat, luxury cars, expensive clothes, high-stakes gambling, and season tickets to premium sporting events. Shapiro additionally tapped approximately $13 million of investor funds to pay large undisclosed commissions to individuals who attracted other investors.

The SEC’s complaint charges Shapiro with violating the antifraud provisions of the federal securities laws. The complaint seeks a permanent injunction, sworn accounting, disgorgement of ill-gotten gains, and financial penalties against Shapiro.

The SEC coordinated the filing of these civil charges with the U.S. Attorney’s Office for the District of New Jersey, which today unsealed criminal charges against Shapiro, who surrendered to authorities this morning.

The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of New Jersey, the Federal Bureau of Investigation, and the Internal Revenue Service. The SEC’s investigation is continuing.