Video: Nicholas Cosmo: A Madoff in the making?

By Chris Hansen Correspondent
NBC News
updated 5/10/2009 7:39:17 PM ET 2009-05-10T23:39:17
TRANSCRIPT

His name isn't Bernie Madoff. It's Nicholas Cosmo. But like Madoff, he's been arrested for making outsized promises to investors that he knew he couldn't keep.  This man believed him.

Darren Aquino:  Ten percent interest for just 45 days.  I said, "Wow."

But instead of profits, Cosmo has left investors with rage at him and the operation he ran. Rage and insurmountable debt.

Just like Madoff, Cosmo was accused of running a Ponzi scheme.  So before we explain how the alleged scheme worked, it's only fair to give credit to the man for whom the scam is named: Charles Ponzi , perhaps the most famous swindler in American history.

Back around 1920, Ponzi was considered a financial wizard after guaranteeing his investors a 50 percent return on their money in just 45 days.

Ponzi created the appearance of a profitable business by using some of the same cash flooding in from new investors to pay off earlier investors eager to see their returns. As word of the brisk profits spread, even more investors were lured into the scam with even more cash. Plenty of it went straight into Ponzi's pocket. Sound familiar?

Nearly a century later, the head of the FBI'S economic crimes unit, David Nanz, says, along with Bernie Madoff, there's been no shortage of modern-day Charles Ponzis.

David Nanz: Just in the last three to six months alone, there's been a substantial increase in the opening of Ponzi scheme cases and there's definitely been a spike in the size of the schemes that we're seeing.

Which brings us back to one of the bigger ones: the one allegedly run by Nicholas Cosmo.

The 37-year-old made Newsday's front cover last January after investigators accused him of defrauding investors out of millions of dollars.

Darren Aquino: What was this man thinking? You know, he has no conscience.

Darren Aquino borrowed money to invest in Agape, Cosmo's company on the eastern shore of Long Island outside New York City.

The company's Web site explained how things worked. Agape brokered short-term loans between property developers and investors like Aquino. The reward? Potentially "high returns." The risk?  Small. The website promised "99 percent security".

Aquino refinanced his house and handed Cosmo more than $65,000. And it seemed to work. Every 45 days, he would pick up what he thought was an interest check from Agape world headquarters.

Darren Aquino: Open that envelope. Wow. Bank of America, beautiful check. Wow, you know? Who would want to take their money out?

In fact, Aquino put more money in. This time he invested money on behalf of the charity he runs -  advocates for disabled Americans. He nagged his staff and friends to get involved too

Darren Aquino: I figured this would be a great-- opportunity for them to really do things they'd never done And it looked really good.  (laughter) It did.  It looked good. I thought it was a blessing.

Word of mouth was also how Dom Dicolandrea found out about Cosmo's money machine.

Dom Dicolandrea:  It was presented to me initially not anyone can get in. You can't go to the Web site, you can't make a phone call. You had to know someone. So, you felt like you were part of a-- a special group.

Dicolandrea, a real estate appraiser, says he did his homework. Agape was rated "low risk" by Dun and Bradstreet, which issues credit information on businesses.  The company was also accredited by the Better Business Bureau. Still, he was cautious.

Dom Dicolandrea: I watched for a while.  I watched them for about six months and, at some point, decided you know what, let me see how it goes.  And I-- I put a small amount of money in.

His skepticism vanished when he saw nick Cosmo on the cover of Entrepeneur Magazine , featured as the CEO of one of the fastest growing businesses in America.

Dom Dicolondrea: And at that point we-- we pretty much went in with our life savings. And some of that-- beyond our savings, we actually borrowed money to complement the project

But as Dicolandrea waited for his investment to pay off big,  other investors were having doubts. Those so-called interest checks were taking longer to arrive.

Private investigator Michael Kessler got a call from a nervous investor asking him to find out just who Cosmo really was.

Michael Kessler: He had been in jail in the past for frauds and swindles. He was in jail for the exact same thing he's being accused of today.

And it wasn't just Cosmo who had a record. Investigators say Cosmo met some of his brokers in prison. One was a convicted drug dealer. Another had been convicted of robbery.

Kessler's investigation concluded Agape was nothing more than a Ponzi scheme, with the investors themselves funding Cosmo and his brokers' lavish lifestyle.

Michael Kessler: They owned fancy cars, they owned million dollar homes, all paid for by cash from illegal gains.

It's unclear how long Agape had been up and running, but Kessler says he alerted authorities last July, nearly six months before Cosmo's arrest.

Michael Kessler: I originally reported it to the Suffolk County District Attorney's office who told me it wasn't in their jurisdiction. It was then reported to the NYS AG's office, who never did anything about it.

The New York State Attorney General's office denies Kessler's claim, saying a formal complaint was never filed.

The Suffolk County DA's office told Dateline it referred any information it received to investigators at the fbi and us postal inspectors service

In the meantime, investors were getting restless. Interest checks had stopped altogether. Unknown to them, Cosmo had allegedly lost $80 million of their money trading in commodities.

Dicolandrea went to see Cosmo in person to ask why the money had stopped flowing. He says Cosmo told him it was because the loans the company had made had defaulted.

Dom Dicolandrea: He was amazing.  Never blinked. I think he has a sickness.  I think that he's-- he probably suffers from-- from some type of-- a-- a mental condition that allows him to lie with no conscience.

Listen for yourself as Nicholas Cosmo tries to soothe panicked investors on a conference call.

Nicholas Cosmo: Can everybody hear me okay?

Investor: How long 'til we get our principal back, Nick?

Nicholas Cosmo: The longest it's taken is about 8 months.... And the, the only thing I need is patience from everybody.

But patience was in short supply. Days later, FBI agents and postal inspectors raided Cosmo's office. Darren Aquino heard about what happened next from a disabled policeman, someone he'd referred to the scheme.

Darren Aquino: He says, "Nick Cosmo got arrested for fraud. The whole thing was a scam." I just stopped on the phone and, "No." 

Ten days ago, Cosmo pleaded not guilty to 10 counts of wire fraud and 22 counts of mail fraud. According to court filings, his defense claims that the government has vastly over-estimated the amount of missing money. That's no comfort to Cosmo's investors.

David Nanz: The likelihood that investors will recover their money, generally is slim to none.  It's very unfortunate.

FBI Agent David Nanz says the victims of Ponzi schemes rarely get their money back. But that's not stopping Dom Dicolandrea from trying. He heads up a group of Agape investors who are looking for answers.

Dom Dicolandrea: You know what?  I'm not angry at-- at Nick Cosmo.  On-- on the list of responsibilities, he's gonna have to stand in line behind the-- the professionals that I trusted to have done due-- done their diligence.

Top of his list? Bank of America . Why? Dicolandrea says so much money was moving through the branch where Cosmo had his account that the bank should have known something was fishy.

Dom Dicolandrea: I do know that the West Hempstead branch is not an affluent neighborhood.  So, for-- to have $380 million moving through that branch for no apparent reason, I'm a bit suspicious of that.

It's more than suspicious according to this lawsuit filed by some of the investors. In the suit, the bank is accused of "playing an integral role" in Cosmo's business and violating "its own well-established anti-money laundering rules."

Attorney Jacob Zamansky.

Jacob Zamansky: They have a responsibility to get under the hood of Agape, find out where the money's coming from. Where is it going? And if they see anything suspicious, they're supposed to file a suspicious activity report with the authorities.

What's more, the lawsuit claims the bank branch "went so far as to assign its own employees to work directly for Agape from the Agape offices.”

Bank of America told Dateline it "does not comment on pending litigation" but it "intends to defend the case vigorously." In the meantime, a trustee for the investors has been auctioning off the company, piece by piece.

And every piece counts. These investors aren't millionaires. They are teachers, firefighters, veterans who for the most part invested their life savings, their kids' college funds, anything they could afford. Agape promised to be their "bridge to the future."  The question is, what kind of a future will it be?

Investor: I don't know what we're going to do. I'm scared.

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