U.S. charges Miami sports donor with $900 million fraud

MIAMI/WASHINGTON Wed Apr 21, 2010 4:04pm EDT

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MIAMI/WASHINGTON (Reuters) - U.S. authorities on Wednesday accused a Miami Beach, Florida, businessman of allegedly running a $900 million investment scam in which some of the defrauded investors' money was used to make donations to a local university.

Nevin K. Shapiro, whose name is enshrined in a University of Miami athletic lounge, was charged with one count of securities fraud and one count of money laundering in connection with operating a Ponzi scheme.

Shapiro faces a maximum of 20 years in prison and $5 million fine on the securities fraud charge. He also faces civil fraud charges filed Wednesday by the Securities and Exchange Commission.

Shapiro surrendered to authorities earlier on Wednesday and is now in jail on a $10 million bond, according to a spokeswoman for the U.S. attorney's office in New Jersey.

U.S. authorities allege that the 41-year-old Shapiro sold investors securities that he claimed would fund his Capitol Investments firm's wholesale grocery distribution business and touted returns as high as 26 percent annually.

Instead, Shapiro redirected funds, making donations to charities, funding his lavish lifestyle and running a Ponzi scheme in which he used funds from new investors to pay the principal and interest to earlier investors, U.S. authorities said.

According to the criminal complaint, Shapiro used about $35 million of investor funds for his personal use. Expenditures allegedly included a pair of diamond-studded handcuffs, more than $400,000 for floor seats to the Miami Heat professional basketball team and about $26,000 for monthly mortgage payments on his $5 million home in Miami Beach.

Shapiro also allegedly used more than $150,000 in investor funds to finance donations to the Miami University's athletic program. The university named a student athlete lounge after him, according to the website of the university's football team, the Miami Hurricanes. The website referred to the "tremendous philanthropic support he provides."

The web site describes Shapiro as "an ardent, devoted, intense supporter of the University of Miami Athletics."

The University of Miami sports department did not return a telephone call seeking comment.

To raise funds, Shapiro attracted investors through word of mouth from friends and business associates, and reassured investors by boasting of his wealth, the SEC alleged in its complaint.

When investors questioned Shapiro, he showed them fabricated invoices and purchase orders for nonexistent sales, the SEC said.

All seemed quiet on Wednesday at Shapiro's $5 million home, a 7-bedroom house located in Miami Beach. The high black gates were closed and no movement was visible behind the hedge surrounding the property.

(Reporting by Rachelle Younglai and Dan Margolies in Washington: Pascal Fletcher, Carlos Barria and Tom Brown in Miami, Jonathan Stempel in New York; Editing by Lisa Von Ahn, Robert MacMillan, Tim Dobbyn and Bernard Orr)

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