Ex-convict charged in Ponzi scheme
NEW YORK CENTRAL ISLIP, N.Y. -- In the latest of a string of alleged financial scams like the Bernard Madoff scandal, an ex-convict was charged Tuesday with running a $370 million Ponzi scheme that cost investors tens of millions of dollars.
Nicholas Cosmo, 37, was arrested on a federal mail fraud complaint for allegedly luring investors with promises of annual returns as high as 80% even as he lost about $80 million of their funds on commodities trades and spent more than $100,000 on jewelry, hotel bills and limousine fares.
The charges were unsealed as federal prosecutors announced the separate arrest of a Florida hedge funds manager who had disappeared just as he was to pay investors $50 million.
Arthur Nadel, 76, who left behind a suicide note when he disappeared on Jan. 14, surrendered in Tampa to face securities fraud and wire fraud charges. He allegedly ran a nearly five-year scam that took in millions of dollars from more than 100 investors.
The developments came as the Senate Banking Committee questioned securities regulators about their failure to detect the alleged Madoff scam that could cost investors as much as $50 billion in losses.
The complaint against Cosmo charges that his New York City and Long Island firms took in $370 million from about 1,500 investors since 2006. They believed they earned gains from short-term business loans.
But most gains came from "money provided by subsequent investors," the complaint charged, outlining a Ponzi scheme like the one Madoff allegedly ran until his December arrest.
Besides the commodities trades and personal expenses, Cosmo allegedly spent more than $200,000 on a restitution order from his conviction in a 1997 financial mail fraud case.
Cosmo remained in custody pending a Thursday bail hearing. He will work with authorities "to allay investors' concerns," said lawyers Arthur Jakoby and Steven Feldman.
The Florida court complaint, meanwhile, said news of the Madoff case prompted two business associates to press Nadel for an audit of his hedge funds. After agreeing, he disappeared, the complaint said. He left behind a handwritten note to his wife that urged her to "withdraw as much cash as you can" because the couple's bank account would be frozen, the complaint charged.
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