Ponzitracker

A New York man whose $400 million Ponzi scheme earned him the nickname of Long Island's Mini-Madoff was sentenced to twenty-five years in federal prison on Friday. United States District Judge Denis Hurley handed down the sentence to Nicholas J. Cosmo, 40, along with an order to pay $179 million in restitution to more than 4,000 investors defrauded by the scheme. Originally indicted on thirty-two counts of wire fraud and mail fraud, Cosmo pled guilty on October 29, 2010 to one count each of wire fraud and mail fraud. He had faced a maximum sentence of forty years in prison at his sentencing.

From October 2003 to January 2009, Cosmo owned and operated Agape World, Inc ("Agape") and Agape Merchant Advance ("Agape Merchant"). Potential investors were told that their money would be used to fund short-term bridge loans to commercial borrowers and loans to other businesses that accepted credit cards. Investors were promised annual returns as high as eighty percent. In total, Cosmo convinced thousands of investors to entrust approximately $413 million with Agape and Agape Merchant. However, Cosmo used only $30 million of investor funds to make short-term bridge loans, and made roughly $80 million of unauthorized trades in commodities and futures positions. The remainder was used to perpetuate a massive Ponzi scheme, using funds from new investors to pay returns to existing investors and create the appearance of a highly successful operation. Cosmo also used investor funds to support a lavish lifestyle and to pay over $60 million in commissions to Agape brokers for continuing to bring in new investors.

The scope of the operations were so large that Bank of America at one point established an unofficial branch within Agape headquarters in Hauppauge, New York, to provide on-site banking services. The branch, staffed by one Bank of America employee, was dedicated solely to Agape's banking needs, and had access to Agape's business records. After the fraud was exposed, Bank of America was named, along with several other defendants, in several lawsuits alleging claims of negligence, aiding and abetting fraud, and aiding and abetting breach of fiduciary duty. The suits alleged that Bank of America ignored many "red flags" that should have alerted them to Agape's fraud. However, the standard in assessing liability against banking institutions such as Bank of America is a high one; actual, rather than constructive, knowledge is required. The Eastern District of New York granted Bank of America's motion to dismiss based on this heightened standard, concluding that:

The Plaintiffs have failed to adequately allege that BOA had actual knowledge of Cosmo's scheme. Nor have they adequately alleged that BOA provided substantial assistance to that scheme.

Additionally, this is not Cosmo's first fraud conviction. In 1999, he was sentenced to a 21-month prison sentence after pleading guilty to a fraudulent scheme while employed as a stockbroker at Continental Broker Dealers. Following that conviction, Cosmo was forbidden from associating with any other broker-dealers and was forced to surrender his broker's license. The U.S. Commodity Futures Trading Commission has also instituted proceedings against Cosmo.

A copy of the complaint filed by the U.S. Commodity Futures Trading Commission is here.

A copy of the order granting Bank of America's motion to dismiss the civil lawsuit is here.

A copy of the 1997 criminal complaint against Cosmo is here.