Great frauds in history: Nicholas Cosmo and the big gambles that turned sour

Nicholas Cosmo conned 4,000 investors out of a total of $195m.

Nicholas Cosmo was born in Long Island, New York, in 1971, and enjoyed a brief career as a minor-league baseball player. This did not lead to the success he had hoped for, so he decided to become a stockbroker instead, getting his licence to trade in 1993. Cosmo was by all accounts a good salesman, but a gambling habit got out of control and he took $177,000 from clients’ accounts to cover gambling losses. He declared bankruptcy and was jailed in 1998. Released from Federal prison in 2000, he set up Agape World Inc. with money from his parents and a government grant.

What was the scam?

Agape World claimed to make money for its investors through short-term real-estate loans designed to meet the need of those moving properties who require short-term liquidity. Cosmo did indeed try to find people to lend money to, but the return on the loans was far less than the high rates of interest that he was promising his investors. At the same time, he started looting the business to cover his personal property speculation, his online futures trading (totalling $80m) and personal expenses. As a result, he came to rely on a constant infusion of new money to repay investors, turning his firm into a Ponzi scheme.

What happened next?

The scheme seemed to work well to start with, attracting plenty of new investors by word of mouth. In the financial crisis of 2008, however, investors started to demand their money back to compensate for losses that they had made on other investments. When Cosmo told them they would have to wait, they hired a private investigator who discovered the fraud and alerted the authorities. Eventually, the US postal service and the FBI got involved, shutting down the scheme in early 2009. Cosmo would eventually be sentenced to 25 years in prison.

Lessons for investors

Agape claimed it had $400m in assets at the time of its collapse, but in fact it had only $750,000 in its bank account. Overall, 4,000 investors, many of whom had invested on the advice of friends, lost a total of $195m invested in the scheme, recovering only about 10% of their money. It’s tempting to follow what people you know are doing, especially if they seem to be successful at it, but it’s wise to keep your financial and personal life separate. Check that the person running any scheme you are considering has no prior convictions.

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