Nevin Shapiro and the Miami Fraud Machine: Turn The Cash Around

January 11, 2012

On April 20, 2010, Nevin Shapiro, 42, of Miami Beach, FL., the former Chief Executive Officer of Capitol Investments USA, Inc. ("Capitol"), was named in a federal criminal Complaint, subsequently indicted, and, thereafter, pleaded guilty to one count of securities fraud and one count of money laundering.

As part of his scheme,  Shapiro fraudulently depicted Capitol's wholesale grocery business as generating tens of millions of dollars in annual sales. In furtherance of that fraud, he directed others to create and show to investors documents (including, financial statements; profit and loss reports, tax returns, and invoices)  fraudulently touting Capitol's profitability.

According to the Indictment and the statements that Shapiro made in connection with his plea, he admitted to using Capitol to solicit approximately $930 million between January 2005 and November 2009 from over 50 individuals who believed they were investing in his grocery distribution business. During the time of these solicitations, Capitol had virtually no income-generating business.

The Final Stall

Beginning in January 2009, Shapiro and Capitol began failing to make required principal and interest payments to investors. In an effort to stall, Shapiro told investors, among other things, that the payments were not being made because Capitol's vendors were late in making payments.  Shapiro also falsely stated that Capitol was suffering from cash flow problems.  Among the more eye-rolling excuses, was that Shapiro's accountant was on vacation.

By November 2009, with the economy itself in shambles, Shapiro and Capitol were forced into bankruptcy, at which time they owed more than $100 million to victim investors.

Another Ponzi

In truth, Shapiro had engaged in a Ponzi scheme - using new investor funds to make principal and interest payments to existing investors, and, what wasn't diverted as part of the Ponzi apparently found its way towards financing Shapiro's lavish lifestyle. Now, when we talk about a "lavish lifestyle" that's only two lousy words. Not much of a description, at that.  For a better sense of what was involved, consider the following.

  • Of the over $35 million in investor funds misappropriated for Shapiro's personal use, at least $5 million wound up covering his illegal sports gambling debts.
  • Perhaps out of guilt or a desire for some favorable recognition, Shapiro also used investor funds to make payments to dozens of student athletes who were attending a local university in the Miami area.  The athletes got up to $10,000 cash and gifts such as jewelry.  On top of that, Shapiro often treated them to Miami Beach nightclubs and restaurants. All of which gives new meaning to a local college booster.   Shapiro's largesse - or perhaps we should say that of his duped investors - wound up getting the local university's Student-Athlete Lounge named for Shapiro.
  • Shapiro used more than $400,000 in investor funds for floor seats to watch the Miami Heat.
  • About $26,000 per month of investors' funds went to cover the mortgage payments for Shapiro's Miami Beach residence  (valued at about $5 million).
  • About $7,250 per month of investors' funds made payments on Shapiro's $1.5 million Riviera yacht.
  • About $4,700 per month of investors' funds paid the the lease of Shapiro's  Mercedes-Benz S65 AMG.
  • An unstated amount of  investor funds purchased a pair of diamond-studded handcuffs as a gift for a prominent professional athlete (reported in the press as Shaquille O'Neal but the athlete disputes the allegation).

Jail Time

On June 7, 2011,  Shapiro was sentenced to 20 years in prison three years of supervised release; and ordered to pay restitution in the amount of $82,657,362.29.

The Torres Family

Finally, we come to the former chief financial officer and an accountant with Capitol, respectively, father and son, Roberto Torres, 77, of New York and formerly of Lighthouse Point, FL, and Alejandro Torres, 40, of Boca Raton, FL. On April 4, 2011, Roberto and Alejandro Torres each pleaded guilty to one count of securities fraud, admitting that they assisted Shapiro in the operation of the Ponzi scheme. Roberto and Alejandro Torres were sentenced Oct. 5, 2011, to 48 and 46 months in prison, respectively.

A Taxing Problem

Sydney Jack Williams, 63, of Naples, FL., personally invested more than $100 million into Capitol. Given that predicate, you'd sort of figure that Williams took a bath.  Well sort of - but it was more like a luxurious bubble bath, at least for a while.

In return for bringing new investors to Capitol, Williams was paid commissions equal to as much as the interest payments for those investors. Williams received over $12 million for bringing more than 60 investors to Capitol. Investors recruited by Williams invested more than $307 million with Capitol, eventually losing more than $38 million as a result of the scheme.

Though Williams received more than $7 million in interest payments, he ultimately suffered an overall $3 million loss. The government did not allege that Williams was aware that Shapiro or Capitol were engaged in fraud. To that extent, he was duped into duping his contacts.

Unfortunately, Williams had this teensy weensy little problem: according to a criminal Information, Williams failed to report more than $6.4 million in income during  2004 to 2007 and owed approximately $2.2 million in taxes on that income.  He pleaded guilty to one count of subscribing to a false tax return that failed to report $1.7 million income for 2005.

On January 10, 2012, Williams was sentenced to a year and a day in prison;  a year of supervised release; ordered  to pay a $25,000 fine; and ordered to cooperate with the IRS in paying his outstanding tax obligations.