A former sales agent that received more than $9 million in commissions from pitching investments in Nicholas Cosmo's $400 million Ponzi scheme has entered into a plea agreement with prosecutors, and may face deportation as a result. Hugo Arias, 44, pleaded guilty to an unspecified number of securities fraud charges before United States District Judge Kathleen Tomlinson, where he admitted that Cosmo's scheme "was a Ponzi scheme." Securities fraud carries a maximum twenty-year sentence for each count, although federal sentencing guidelines will likely result in a reduced sentencing recommendation.
Agape was a nationwide Ponzi scheme orchestrated by Cosmo, whose exploits earned him the nickname as the "New York Mini-Madoff". After being indicted
in April 2009, Cosmo pled guilty to one count of wire fraud and one count of mail fraud, and was sentenced
to twenty-five years in federal prison in October 2011. According to prosecutors, Agape solicited over 5,000 investors nationwide, offering exorbitant short-term returns that were the equivalent of eighty percent annually. Cosmo told potential investors that these returns were achieved by making profitable short-term bridge loans. As a result, Cosmo and Agape took in approximately $413 million from thousands of investors nationwide. However, in reality only $30 million was used to make bridge loans, while approximately $80 million was lost as the result of unauthorized trading in commodities and futures positions. Approximately $232 million was paid to investors in the form of fictitious interest payments.
After Cosmo was sentenced to prison, authorities began investigating the scheme's use of commissioned agents to attract investors. The Securities and Exchange Commission filed civil fraud charges against fourteen brokers, including Hugo Arias, in June 2012, alleging the agents used an assortment of false claims made to lure investors, including the safety of an investment, the intended use of investor funds, and the attractive rate of return. Authorities focused on alleged misrepresentations and omissions made by agents in 2008 despite learning that previous bridge loans made in 2007 were either in default or on extension. Cosmo's sales agents were richly rewarded for their efforts; more than $60 million was paid out to agents in commissions during the scheme's existence.
Additionally, in light of the short-term nature of the investments, the agents urged investors to "roll-over" their principal and accrued interest to continue to perpetuate the scheme and ignored numerous red flags of fraud, including Cosmo's prior criminal convictions for fraud, the promised exorbitant returns, and representation that only 1% of an investor's principal was at risk.
Criminal authorities have charged eight people, including Cosmo and Arias, since the scheme collapsed in 2009. This includes:
- Richard Barry, who pleaded guilty in August 2010 and awaits sentencing;
- Jason Keryc, Anthony Ciccone, Diane Kaylor, and Anthony Massaro, 41, who were arrested in April 2012; and
- Bryan Arias, Hugo Arias's brother, and Shamika Luciano, who were arrested in December 2013.
According to LIBN.com, six former Agape brokers remain free on bail pending trial.
After serving his sentence, Arias could be deported back to his native country, Colombia. He remains free on $50,000 bond pending sentencing.
Previous Ponzitracker coverage of the Agape World Ponzi scheme is here.