CEO of Capitol Investments USA, Inc. Sentenced to 20 Years in Prison for $930 Million Ponzi Scheme Based on Phony Grocery Business
|U.S. Attorney’s Office June 07, 2011|
NEWARK—The former owner and chief executive officer of Capitol Investments USA, Inc. (“Capitol”) was sentenced today to 20 years in prison for overseeing an $930 million Ponzi scheme linked to his purported wholesale grocery distribution business, U.S. Attorney Paul J. Fishman announced.
Nevin Shapiro, 42, of Miami Beach, Fla., previously pleaded guilty before U.S. District Judge Susan D. Wigenton to one count of securities fraud and one count of money laundering. Judge Wigenton also imposed the sentence today in Newark federal court. Shapiro has been in federal custody since his surrender to FBI and IRS agents in April 2010.
According to the Indictment to which Shapiro pleaded guilty and statements made in court:
Shapiro used Capitol to solicit approximately $930 million between January 2005 and November 2009 from individuals who believed they were investing in Shapiro’s grocery distribution business. Shapiro admitted that Capitol had virtually no income-generating business during that time, and that he used new investor funds to make principal and interest payments to existing investors, as well as to fund his own lavish lifestyle.
More than $35 million in investor funds were misappropriated for Shapiro’s personal use, including to pay at least $5 million in illegal sports gambling debts. Shapiro also used investor funds to make payments to dozens of student athletes who were attending a local university in the Miami area to which Shapiro made significant donations—also using investor funds. These payments included cash in amounts up to $10,000 and gifts such as jewelry and entertainment at nightclubs and restaurants in Miami Beach. As a result of a 10-year gift to the university, its Student-Athlete Lounge was named for Shapiro.
Shapiro used more than $400,000 in investor funds for floor seats to watch Miami Heat professional basketball games; approximately $26,000 per month for mortgage payments on his residence in Miami Beach, recently appraised at approximately $5 million; approximately $7,250 per month for payments on a $1.5 million Riviera yacht; and approximately $4,700 per month for the lease of a Mercedes-Benz S65 AMG automobile. Shapiro also used investor funds to buy a pair of diamond-studded handcuffs, which he gifted to a prominent professional athlete.
To induce investors from New Jersey and throughout the United States, Shapiro directed others to create and show to the investors documents fraudulently touting Capitol’s profitability. Those documents included: financial statements; profit and loss figures fraudulently representing that Capitol’s wholesale grocery business was generating tens of millions of dollars in annual sales; personal and business tax returns for Shapiro and Capitol also fraudulently reflecting those sales; and numerous invoices fraudulently reflecting transactions between Capitol and other companies in the wholesale grocery business.
Shapiro admitted that more than 50 victim investors lost a total of between $50-100 million as a result of the scheme. The Complaint filed in April 2010 alleged Shapiro had defrauded investors out of at least $80 million. Beginning in January 2009, Shapiro and Capitol began failing to make required principal and interest payments to investors. At the time, Shapiro told investors, among other things, that the payments were not being made because Capitol’s vendors were late in making payments, that Capitol was suffering from cash flow problems, and that Shapiro’s accountant was on vacation. Shapiro and Capitol were forced into bankruptcy in November 2009. At that time, they owed more than $100 million to victim investors.
In addition to the prison term, Judge Wigenton sentenced Shapiro to three years of supervised release and ordered him to pay restitution in the amount of $82,657,362.29.
U.S. Attorney Fishman stated: “Nevin Shapiro used other people’s money to live a fantasy life built on false promises to unsuspecting victims. Today’s sentence reflects the scope of his deception, duping victims to invest nearly a billion dollars.”
U.S. Attorney Fishman credited special agents of the FBI, under the direction of Special Agent in Charge Michael B. Ward; and IRS - Criminal Investigation, under the direction of Special Agent in Charge Victor W. Lessoff, for the investigation which led to today’s sentence. Fishman also thanked the Securities and Exchange Commission’s Miami Regional Office, under the direction of Eric Bustillo.
The government is represented by Assistant U.S. Attorneys Justin W. Arnold and Jacob T. Elberg of the U.S. Attorney’s Office Criminal Division in Newark.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.
Defense counsel: Maria Elena Perez Esq., Coral Gables, Fla.