Yet Another Massive Ponzi Scheme Alleged. What’s that tell you?
Nick Cosmo, the 37-year-old head of Agape World Inc. and Agape Merchant Advance, was arraigned today on charges that he ran a Ponzi scheme that cheated investors out of $370 million since 2006.
The feds allege that about 1,500 investors were promised annual returns of as much as 80%. These huge profits were to come from short-term loans to businesses. Instead of coming from actual profits, however, the complaint states that returns paid to investors actually came from the outlays of subsequent investors.
Investor money went mostly to pay other investors, in a rob-Peter-to-pay-Paul setup similar to the Bernie Madoff and seemingly countless other Ponzi schemes hitting the news these days. About $55 million went to pay brokers who brought in the investors. A bunch of cash was allegedly spent on expensive luxuries for Cosmo himself, as well as to pay the restitution ordered in a previous mail fraud conviction. Only about $10 million actually went to the loans that were supposed to be the core investment. The firm also transferred $100 million since 2003 into Cosmo’s futures-trading accounts, of which $80 million was lost. As of last Thursday, said prosecutors, Cosmo’s firms had less than $750,000 in the bank.
Agape World was listed as #73 in Entrepreneur Magazine’s Hot 100 fastest-growing businesses in America. (See its listing, screenshotted above.)
This is just one more in a series of prosecutions that have been coming down lately. Prosecutors are clearly ramping up their focus on financial crimes in the wake of the Bear Stearns meltdown — it’s definitely the sexy crime of the moment, where the press is throwing a lot of ink, where reputations stand to be made. Of course, crime is only found where it’s looked for, and right now this is a hot (and relatively easy) crime to prosecute. So it makes sense that this is where prosecutors are focusing lots of assets.
But apart from that, what does it mean about the rest of us? Almost all of these Ponzi schemes promised investors stupid-high returns. Wasn’t it obvious to the investors what was going on? Were they just blinded by the go-go stock market, while it was hot? Were they desperate for a winning number after the market soured? Lots of the alleged victims out there were sophisticated investors — one would think they at least would have known the meaning of “too good to be true.” We’d like to hear what you think is going on.
We guess people’s common sense just gets blinded by the prospect of easy gains. And it happens often enough, to enough people who ought to know better, that this crime continues to proliferate nearly a hundred years after it became part of the common lingo.
Oh well, more work for us defense attorneys.
Tags: bank fraud, criminal law, criminal policy, criminal procedure, fraud, Investigations, investor fraud, mail fraud, ponzi, ponzi scheme, pyramid scheme, securities fraud, white collar crime, wire fraud