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Harsh light shines on Wall Street's dark side

The dark side of American business was on full display Tuesday as four men accused of  defrauding investors were arrested, investigated, surrendered or sentenced.
/ Source: staff and news service reports

The dark side of American business was on full display Tuesday.

Four men accused of varying degrees of defrauding investors out of millions — or even billions — were either arrested, investigated, surrendered to authorities or sentenced to prison.

It was a stunning refrain of alleged deception while the country struggles with the deepest recession since the Great Depression in a week that has seen major employers announce thousands of job cuts and consumer confidence fall to a record low.

At the top of the list: Bernard Madoff, the former money manager and Wall Street luminary accused of running a $50 billion Ponzi scheme. The regulator in charge of ferreting out fraudulent schemes on Wall Street, the Securities and Exchange Commission, was grilled by Congress Tuesday over its failure to detect Madoff's alleged wrongdoing.

Linda Thomsen, the SEC’s enforcement director, said the agency needs to improve its internal processes for pursuing cases. She said the agency also needs authority to regulate parts of the financial system that escape oversight and needs funding to carry out more investigations.

"While we always do our utmost to do more with less, if we had more resources, we could clearly do more,” Thomsen said in testimony prepared for a Senate Banking Committee hearing. The hearing is Congress’ first opportunity to question federal regulators about the Madoff scandal.

Even as that hearing was going on, federal authorities were accusing the owner of a New York investment firm of running a smaller but still devastating $370 million Ponzi scheme, luring in clients with promises of astronomical returns while secretly blowing tens of millions of dollars on bad trades and conspicuous spending.

Nicholas Cosmo, who was arrested Monday by FBI and U.S. Postal Inspection agents, was awaiting arraignment Tuesday on mail fraud charges.

'That's fraud'
In cheating investors, Cosmo, 37, "not only understated the risk, he completely misrepresented the underlying investments," said Joseph Demarest, head of the FBI's New York office. "When you lie about what you're selling people, that's fraud."

A criminal complaint says Cosmo, who runs Agape World Inc. and Agape Merchant Advance in Hauppauge and the New York borough of Queens, took in more than $370 million from about 1,500 investors since 2006.

The investors believed they would make returns as high as 80 percent a year from interest collected on short-term loans to businesses. But the complaint said an investigation revealed that "much of the money paid back to investors ... was actually money provided by subsequent investors" — a Ponzi scheme similar to the one alleged in the Madoff case.

A letter hanging in Cosmo’s office window denies there was any Ponzi scheme. There was no sign on Agape World Inc.'s Web site — with its motto of "We provide the bridge to your future" — that anything unusual had occurred.

The criminal complaint says Cosmo also spent investor money on jewelry, hotel rooms, limousines, payments to his wife and a private baseball league. About $212,000 was used to pay restitution from a previous mail fraud conviction.

“Right now, I think I’ve been scammed,” Richard Bennett, 55, a Valley Stream real estate investor who invested $30,000 with Agape World, told Newsday.

Unlike Madoff, who is accused of bilking wealthy individuals and nonprofits, Agape World investors are more “blue-collar, and they invested their life savings,” Michael Kessley, a forensic accountant hired last year to investigate the firm, told Newsday.

Defense attorneys haven’t returned telephone calls seeking comment.

Separately, a Florida hedge fund manager who disappeared this month just as he was due to pay investors $50 million also turned himself in to authorities Tuesday to face federal securities and wire fraud charges.

Arthur Nadel, accompanied by two attorneys, surrendered in Tampa, about an hour north of his home in Sarasota, the FBI said.

The FBI did not provide additional details about his surrender or where he has been for the past two weeks. Nadel's attorney, Todd A. Foster, did not immediately respond to a telephone message left with his office.

Federal regulators last week sued Nadel for fraud, saying he misled investors and overstated the value of investments in six funds by about $300 million. The SEC also won a court order freezing his assets.

Justice's long arm
A criminal complaint unsealed Tuesday in federal court in Manhattan alleges Nadel has been defrauding investors since 2004.

Nadel, 76, disappeared Jan. 14 after telling his wife in a note that he felt guilty. He also threatened to kill himself, according to the Sarasota County Sheriff's Office. Police found his green Subaru the next day in an airport parking lot.

At the other end of justice's arm, a former executive of insurance heavyweight American International Group Inc. was sentenced to four years in prison Tuesday in a fraud case that authorities say cost shareholders more than $500 million.

Christian Milton of Wynnewood, Pa., declined to comment during a hearing in U.S. District Court in Hartford, Conn. He was ordered to report to the federal Bureau of Prisons March 25, and his lawyers said they were preparing an appeal.

Judge Christopher Droney also fined Milton $200,000.

Milton, 61, AIG's vice president of reinsurance from 1982 to 2005, was convicted last year of conspiracy, securities fraud, mail fraud and making false statements to the SEC.

The investigation also led to the convictions of four General Re Corp. executives last year for their roles in manipulating AIG's financial statements.

The federal government rescued AIG in September and has pumped more than $100 billion into the company, making it the largest U.S. government bailout of a private company.