U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21495 /April 21, 2010
SEC v. Nevin K. Shapiro, Civil Action No. 1:10-CV-21281-ALTONAGA/BROWN (S.D. FL April 21, 2010)
SEC Charges Prominent Miami Beach Businessman Nevin K. Shapiro With Operating a $900 Million Fraud and Ponzi Scheme
The Securities and Exchange Commission announced today that it has filed an injunctive action against Nevin K. Shapiro, alleging that he conducted a $900 million offering fraud and Ponzi scheme targeting more than 60 investors nationwide.
The SEC's complaint alleges that from February 2003 through November 2009, Shapiro, the president, Chief Executive Officer and sole shareholder of Capitol Investments USA Inc., (Capitol), a Miami Beach, Florida-based grocery diverter, offered promissory notes claiming annual returns of 10 to 26% purportedly backed by purchase orders and receivables generated by Capitol's food brokerage business. In reality, Capitol was operating at a loss since late 2004 with virtually no operations by 2005. Beginning in January 2005 through November 2009, Shapiro operated a Ponzi scheme using new investor funds to pay principal and interest to earlier investors.
Grocery diverters like Capitol purchase lower-priced groceries in one region and re-sell 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 by selling them short term promissory notes, telling them that he would use their funds as short term financing to purchase and resell groceries for Capitol's business. Shapiro falsely touted Capitol's financial success (as well as his own) and 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. Shapiro also falsely told investors that Capitol would pay the principal and interest from the profits it received when it resold the goods. When investors raised questions about Capitol's business, Shapiro showed them fabricated invoices and purchase orders for nonexistent sales.
The SEC's Complaint further alleges that Shapiro also misappropriated at least $38 million of investor funds to finance outside business ventures unrelated to the grocery business, including a sport representation business and real estate ventures, and to fund his lavish lifestyle. He also used investor funds to pay large commissions to individuals who attracted additional investors.
The SEC's complaint charges Shapiro with violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC seeks a permanent injunction, sworn accounting, disgorgement of ill-gotten gains with prejudgment interest, and a civil money penalty against the defendant. The SEC coordinated the filing of these charges with the United States Attorney for the District of New Jersey who charged Shapiro today with securities fraud and money laundering. Shapiro surrendered this morning to special agents of the Federal Bureau of Investigation and the Internal Revenue Service criminal investigation unit. The Commission 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, with which the Commission has coordinated its investigation. The SEC's investigation is continuing.
See Also: SEC Complaint