Securities Law Blog

President and founder of Capitol Investments USA, Inc., Nevin K. Shapiro, has been criminally charged with securities fraud and money laundering by federal prosecutors from the U.S. Department of Justice in New Jersey. According to court documents, the Miami Beach-based businessman allegedly raised over $880 million from at least sixty investors by selling securities that he claimed would fund Capitol’s grocery diverting business.

Capitol’s business was purchasing lower-priced groceries from vendors in one region of a country and reselling them for profit in another region where the prices were higher.

The Securities and Exchange Commission (SEC) also filed civil charges against Shapiro for what they claim to be a $900 million Ponzi scheme.

According to the SEC complaint, the fraud that began in February 2003 and ran through November 2009 developed into a Ponzi scheme in January 2005 when Capitol had “virtually no legitimate business.” In 2005 Shapiro allegedly began using new investor money to make principal and interest payments in typical Ponzi fashion.

Shapiro allegedly enticed investors to purchase his “risk-free securities” promising rates of return up to 26% annually. The SEC alleges that Shapiro made several other misrepresentations to investors, including that the company had a successful track record with gross sales of $64 million in 2008 and projected sales of $70 million in 2009. Shapiro allegedly provided investors with fabricated invoices and purchase orders for nonexistent sales.

The SEC’s complaint alleges that Shapiro misappropriated at least $35 million for personal use. Shapiro allegedly used the money to cover gambling debts, purchase luxury cars and tickets for sporting events, pay for his $5 million dollar home in Miami Beach, make large donations to local universities, and fund his other business ventures.

When Capitol filed for bankruptcy in November 2009, investors were owed more than $80 million.

The SEC is charging Shapiro with violating antifraud provisions of the federal securities laws. The industry regulator is seeking a permanent injunction, sworn accounting, disgorgement of ill-gotten gains and financial penalties against Shapiro.