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'Mini-Madoffs' Nabbed in Alleged Ponzi Schemes

POSTED: 06:47 PM ET, 01/27/2009 by Derek Kravitz

Bernard Madoff

If Bernard Madoff and his alleged $50 billion Ponzi scheme hadn't come first, the charges against investment managers such as Nicholas Cosmo and Arthur Nadel would have been enormous business stories.

Now, at least according to prosecutors, they are just two of many "mini-Madoffs."

Authorities in New York alleged today that Cosmo, the 37-year-old founder of Agape World Inc., a loan business on Long Island, stole more than $370 million from more than 1,500 investors in what amounted to another Ponzi scheme. Cosmo, who has denied wrongdoing, was arrested last night on federal mail fraud charges.

Cosmo operated his business from 2003 to 2008, according to the U.S. Attorney's Office in the Eastern District of New York (statement). He told investors their money would be lent short-term at high interest as bridge loans for commercial borrowers and that the investors would see returns as high as 80 percent a year.

But prosecutors allege that less than $10 million was actually lent out while Cosmo lived a luxurious lifestyle. Only $746,000 was found in bank accounts last week, according to a federal affidavit.

Before he started Agape, Cosmo served a 21-month prison sentence after pleading guilty to misappropriating funds as a stockbroker in 1999. (In an October interview with Bloomberg at his office, Cosmo said he wasn't operating a Ponzi scheme.)

"In these difficult economic times, it bears repeating that if an investment opportunity seems too good to be true - promising unusually high returns and virtually no risk - it is probably not on the level," U.S. Attorney Benton J. Campbell said in a statement.

Also today, Nadel, a 76-year-old hedge-fund manager from Sarasota, Fla., turned himself in after being chargedlast week with fraud. He disappeared on Jan. 14, a day before he was supposed to make good on a pledge to deliver $50 million to angry investors.

In a suicide note he left at home, Nadel described "extreme guilt he was feeling over business actions that he had taken which resulted in the loss of other people's money."

Those who knew Nadel said he was essentially a day trader, dealing with leveraged derivatives, such as the one based on the NASDAQ 100 stock market index.

The U.S. Securities and Exchange Commission said Nadel misled investors and overstated the value of investments in six hedge funds by about $300 million. Regulators also contend that Nadel transferred at least $1.25 million from two of the hedge funds to secret bank accounts he controlled.

And yet another alleged Ponzi operator -- Philadelphia-area investment manager Joseph Forte -- told reporters today during a court appearance that he had lost $50 million of investors' money.

Forte, 53, who is charged with federal mail fraud for allegedly swindling money from about 80 investors between 1995 and 2008, told a judge that he had "absolutely no money. We don't even have enough to (live on)."

A judge gave Forte until Monday to return to court with a lawyer for a probable-cause hearing.

Regulators are promising that schemers will face a new level of scrutiny. (See: How to Avoid Getting Burned by the Next Bernard Madoff)

By Derek Kravitz |  January 27, 2009; 6:47 PM ET
Previous: Blagojevich Caught on Tape | Next: Peanut Plant Aware of Salmonella, The Blagojevich Tapes, Timothy Geithner's Two-Step


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