The owner of a New York investment firm ran a $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, federal authorities said Tuesday.
Nicholas Cosmo, who was arrested Monday by FBI and U.S. Postal Inspection Service agents, was awaiting arraignment Tuesday on mail fraud charges.
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 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 Bernard Madoff case.
Investigators say less than $10 million in loans were made. Aside from compensating prior investors, the remainder was used to pay $55 million to brokers who recruited new investors.
Since 2003, the firm also had transferred $100 million into commodities futures trading accounts controlled by Cosmo. About $80 million of that was lost on trades, the complaint said.
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.
As of last Thursday, Cosmo's firm had only $746,000 in the bank, prosecutors said.
Cosmo's attorneys did not immediately return calls seeking comment. A letter hanging in one of his office windows denied there was any Ponzi scheme.
If convicted, Cosmo faces up to 20 years in prison.
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Associated Press Writer Tom Hays in New York City contributed to this report.