Recession forces unraveling Ponzi schemes into the open

"Nothing has quite the deterrent impact as a significant jail term for wrongdoers," says Khuzami, the SEC enforcement chief.

But some alleged scams defy even the best-planned enforcement and prevention efforts.

In late January, Long Island, N.Y., businessman Nicholas Cosmo was arrested and charged with running a $370 million Ponzi scheme prosecutors say cost hundreds of investors tens of millions of dollars. He allegedly spent some of the money on jewelry, hotel stays, limousine bills and other personal expenses, including a youth baseball league.

But Cosmo allegedly spent more than $200,000 on another expense: satisfying a restitution requirement from his 1999 guilty plea to mail fraud in connection with a previous investment scam.

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