On Monday the U.S. district attorney's office in Central Islip, N.Y., arrested Nicholas Cosmo, founder and owner of Agape World Inc. and Agape Merchant Advance LLC in Hauppauge, N.Y., charging him with a $370 million mail fraud. Agape claims it has been in the business of providing private bridge loans to commercial real estate companies and builders. The Feds don't seem to agree.
Federal agents executed search warrants at three Agape offices and froze both company and personal bank accounts, seizing $1.5 million. Cosmo's initial appearance in court is scheduled for late Tuesday in front of U.S. Magistrate Judge E. Thomas Boyle at the U.S. courthouse in Central Islip.
Though the complaint against Cosmo does not cite an official Ponzi scheme, it certainly looks and smells like a Ponzi. The complaint alleges that Agape's bridge loans were touted as secured by borrowers' assets and that investors would receive substantial interest returns ranging from 48% to 80% per year. Records indicate that from Jan. 1, 2006, to Nov. 30, 2008, more than $370 million was deposited into Agape accounts the vast majority of which was provided by more than 1,500 investors and that less than $10 million of the $370 million was actually used to make loans to commercial borrowers. (See pictures of Bernard Madoff's demise.)
As of Jan. 22, 2009, the complaint says, only approximately $746,000 remained in all Agape accounts and most of Agape's money was used to pay prior investors, pay more than $55 million to brokers who recruited investors, and fund seven commodities-futures-trading accounts controlled by Cosmo. Those accounts, the complaint says, lost more than $80 million between October 2003 and October 2008. (See the Top 10 financial collapses of 2008.)
Agape did not return calls for comment, and neither Cosmo nor his attorneys could be reached for comment.
"He was like a Pied Piper," said Michael Devine, a Port Jefferson, N.Y., lawyer who represents salespeople at the firm who "felt something wasn't right." The salespeople were selling friends and family on Agape's high-yield claims. "[Cosmo] actually sat down with investors and explained his investments to them. He was a very convincing salesman," said Devine. (Read "Beyond Madoff, Ponzi Schemes Proliferate.")
Problems arose when investors blew the whistle on Cosmo after payouts were postponed in September (until December), according to private investigator Mike Kessler. When December payments were postponed to January, "investors went nuts," said Kessler, whose clients are Agape investors.
Kessler's investigations found that brokers "lived lavishly and there were a lot of red flags, not the least of which was that Cosmo was a convicted felon." (Read "The Ponzi Scheme in Every Hedge Fund.")
In September 2008, Kessler alerted the Suffolk County district attorney, the FBI and the New York attorney general. But nothing happened until investors stopped getting their money, he says: "They started calling everyone then."
Agape's website says it has been a "private bridge lender" since 1999, but U.S. Bureau of Prisons records show that Cosmo was released from the Allenwood, Pa., federal penitentiary on Aug. 23, 2000. In 1997, Cosmo, then a stockbroker, was accused of misappropriating funds, according to court records. He pleaded guilty to a single federal charge and was sentenced to 21 months in prison and ordered to pay restitution.
Robert Chew is a former investor with Madoff via a feeder fund. He lives in Colorado.