SEC Charges 14 Sales Agents in $415 million Ponzi Scheme

SEC v. Bryan Arias et al., Case No. CV12-2937 (E.D.N.Y.).  On June 12, 2012, the SEC charged 14 sales agents who misled investors and illegally sold securities for a Long Island-based investment firm at the center of a $415 million Ponzi scheme.  The Defendants were the principal sales agents for Agape World, Inc. (“Agape”), a $415 million Ponzi scheme organized by Nicholas J. Cosmo, the president of Agape that, from 2005 through January 2009, impacted more than 5,000 investors nationwide.  Some defendants held themselves out as brokers, representatives or officers of Agape.  Other defendants worked as so-called “sub-brokers.”

The Defendants sold investments offered by Agape that promised investors huge returns, typically 12-14% in as little as eight to ten weeks (or approximately 6291% annually), from their participation in high interest bridge loans purportedly made by Agape to commercial borrowers.  The Defendants also sold investments offered by Agape Merchant Advance LLC (“AMA”), a later off-shoot of Agape, that promised investors a 4% monthly return from their participation in short term loans made by AMA to businesses that accepted credit cards (“AMA Investment Contracts” and, together with the Agape Investment Contracts, “Agape Securities”).

The Agape Securities were fictitious with, at best, a fraction of investor funds used as represented to investors by the Defendants.  The Brokers and Sub-brokers made misrepresentations to investors concerning the Agape Securities, the use to which investor funds would be put, and the safety of the investments, and urged investors to “rollover” their principal and earned interest from one Agape Security to the next, to perpetuate the scheme.  The Brokers and Sub-brokers knowingly offered and sold Agape Securities despite numerous signs of fraud, including Cosmo’s prior conviction for fraud; the too-good-to-be-true returns and incredible safety of principal promised to investors; Agape’s status as a relatively small, unknown, private issuer of securities; a series of extensions and defaults by Agape; and dire warnings about Agape’s financial condition.

Cosmo made commission or other payments of more than $52 million to the Brokers; he lost $80 million trading futures in personal accounts; and he returned $232 million to investors.  At best, $21.9 million, or 5.28%, of the funds raised, was used, as represented to investors, to make loans to commercial borrowers or to businesses that accepted credit cards.

The scheme came to an end on January 27, 2009, when Cosmo was arrested on a criminal complaint filed in the United States District Court for the Eastern District of New York.  Cosmo subsequently pleaded guilty to one count each of wire and mail fraud, and was sentenced to 300 months in prison.

On April 25, 2012, several other defendants were arrested on a criminal complaint filed in the United States District Court for the Eastern District charging each of them with one count of conspiracy to commit mail fraud.

Defendants are charged with violating Sections 5(a), 5(c), 17(a) of the Securities Act, Sections 10(b) and 15(a) of the Exchange Act and Rule 10b-5 thereunder.  The SEC is seeking injunctive relief, civil monetary penalties, and disgorgement with prejudgment interest.

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