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Shades of Crazy Eddie

This is the Crazy Eddie inventory scam all over again.

"The SEC alleges that Nevin K. Shapiro, the founder and president of Capitol Investments USA, Inc., sold investors securities that he claimed would fund Capitol's grocery diverting business.

Shapiro told investors that the securities were risk-free with rates of return as high as 26 percent annually.

Instead, Shapiro was actually conducting a Ponzi scheme and illegally using investor money to pay for other unrelated business ventures and fund his own lavish lifestyle.

When investors questioned Capitol's business, Shapiro showed them fabricated invoices and purchase orders for nonexistent sales.

"Shapiro lured investors by falsely touting Capitol's securities as a risk-free investment with extraordinarily high returns," said Eric I. Bustillo, Director of the SEC's Miami Regional Office.

"He used his prominence and prestige to gain investors' trust in funding Capitol's grocery diverting business, but behind their backs he diverted their money to enrich himself."

Grocery diverters like Capitol purchase lower-priced groceries in one region and resell them for a profit to another region where prices are higher.

According to the SEC's complaint, filed in U.S. District Court for the Southern District of Florida, Shapiro used his business relationships and word-of-mouth to solicit investors and sell them short-term promissory notes."

The SEC pleads that this scheme is at least five years old.

Barry Minkow, of ZZZ Best infamy, used to have on his website a series of short videos explaining or demonstrating to investors what the tricks of being stonewalled by a con were.

I thought that they were fantastic - no mere mechanical due diligence checklist will catch these criminals.  You have to be looking for the tricks, and Barry knew all or most of them.

Here is hoping that Barry will do the community a public service and put back his videos on detecting fraud. 

Related articles by Zemanta

• Capitol Investments' Chief Charged in Ponzi Scheme (Update2) (businessweek.com)
• Ponzi Scheme: Sex! Strippers! Unregistered Debt Offerings! (paul.kedrosky.com)
• SEC shuts down Turkish investment, claims it's a Ponzi (ocbiz.freedomblogging.com)

Full post as published by Misleading Advertising Law on April 26, 2010 (boomark / email).