BULLETIN: Another Spectacular Florida Ponzi Case Emerging; Nevin K. Shapiro Charged Criminally, Civilly In Alleged $900 Million Fraud

BULLETIN: Nevin K. Shapiro, the founder and president of Capitol Investments USA Inc., surrendered to authorities this morning after being charged both criminally and civilly in an alleged $900 million Ponzi and fraud scheme in south Florida and elsewhere, the SEC said.

Shapiro, 41, is a prominent Miami Beach businessman and philanthropist in the wholesale grocery business. He is expected to make a court appearance in New Jersey today.

Most of Shapiro’s investors live in Florida or Indiana, according to the SEC complaint. Some diverted funds from their IRA’s to earn profits by investing with the grocery company, but Shapiro conducted virtually no meaningful business after 2004 and simply propped up his grocery business with a shell game that raised $880 million from investors between 2005 and 2009 before the scheme collapsed, the SEC charged.

“Capitol’s sales were less than $300,000 in 2005 and 2006, and it had no sales from 2007 through 2009,” the SEC charged.

“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 buy merchandise in one market and sell it in another at a higher price. Shapiro’s company, however, began operating a Ponzi scheme in 2005 after operating at a loss in 2004, the SEC charged.

The SEC said Shapiro diverted $38 million “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,” the SEC said. “Shapiro additionally tapped approximately $13 million of investor funds to pay large undisclosed commissions to individuals who attracted other investors.”

A girlfriend received goods totaling $116,000 that were charged to Capitol’s American Express Black Card, and Shapiro himself made personal purchases of about $524,000 on the card, the SEC charged.

All in all, the SEC said, the scheme was “a $900 million offering fraud and Ponzi scheme.” Investors were offered returns of 26 percent annually, backed by bogus claims that “Capitol’s purchase contracts and accounts receivable secured their investments.”

Earlier this year, U.S. Attorney General Eric Holder said south Florida was “ground zero” for Ponzi schemes, noting that many of Bernard Madoff’s victims lived in the region. The government still is in the process of unwinding Madoff’s $65 billion fraud and Scott Rothstein’s $1.2 billion fraud.

Smaller — though still massive Ponzi frauds — recently have occurred in the state, and Shapiro’s alleged $900 million fraud now is included among them.

“To those who see the victimization of others as an avenue to wealth, take notice,” Holder warned in a January speech in Florida. “If you fabricate a financial statement, if you propagate an investment scheme, if you are complicit in an act of financial fraud, you are writing your ticket to jail.”

The FBI and IRS also are involved in the Shapiro probe, the SEC said.

“By late 2004, Capitol was operating at a loss,” the SEC charged. “From 2005 though late 2009, Capitol had almost no business operations. To hide this from investors, Shapiro merely repaid earlier investors with approximately $769 million collected from new investors in typical Ponzi scheme fashion.”

The agency said “Capitol has never registered an offering or class of securities under the Securities Act or the Exchange Act,” and Shapiro was charged with securities fraud.

In the past 48 hours, law enforcement and regulators have filed complaints in cases in Florida and New York that allege frauds totaling about $1 billion.