Header graphic for print
Securities Compliance Sentinel Analysis of cutting-edge securities industry issues

What You Should Know Before You Start a Ponzi Scheme?

Posted in Federal and State Criminal Activities, Ponzi Schemes

Okay, no one is suggesting that you start a Ponzi scheme!!!  However, now, that we have your attention, you should be aware of the United States Court of Appeals for the Second Circuit’s decision affirming a 25-year prison sentence for Ponzi scheme operator, Nicholas Cosmo.  See United States v. Cosmo, 2d Cir., No. 11-4506, 9/20/12, and http://federal-circuits.vlex.com/vid/united-states-v-cosmo-399026010.

This action was the result of Cosmo’s role as the former head of Agape World Inc. and Agape Merchant Advance LLC.  It was alleged that he mislead clients to invest more than $400 million over five years in certain short-term loans with high rates of return promises.  However, in typical Ponzi scheme fashion, Cosmo allegedly merely paid earlier customers with new customer money.  Cosmo was also apparently a bad trader as well, losing more than $100 million though unauthorized futures and commodities trades, and not making any loans he claimed he would to investors.  Although the government claimed, investors lost over $195 million, Cosmo’s restitution order, however, was approximately $180 million along with a 25 year prison sentence.

Cosmo had, in fact, plead guilty, but he was upset that the district court sentenced him to consecutive sentences.  The Second Circuit found no problem with this sentence, indicating that Cosmo had been a bad guy and committed a major fraud.  Essentially, the Second Circuit was not buying Cosmo’s “mercy” argument.

A lesson hopefully others will learn.