Great frauds in history: Nevin Shapiro’s groceries scam
Nevin Shapiro's "grocery diverting" business was in reality nothing more than a Ponzi scheme.
Nevin Shapiro was born in Brooklyn, New York, in 1969, and grew up in Miami. He dropped out of the University of Southern Florida after a fight during an American football game and went on to work at Atlantic Wholesale, a grocery diverting business, which made money by buying cheap groceries in one part of the country and re-selling them elsewhere for a profit. In 1997, Shapiro’s stepfather, Richard Armand Adam, was charged in Canada with business fraud and accused of stealing $6m by collecting fees on loans that never materialised. He served six years in Canadian prisons. In 1998, his stepson struck out on his own, opening his own grocery diverting business.
What was the scam?
Shapiro claimed investors could make large risk-free returns of 10%-26% a year by lending money to his new company, Capitol Investments USA, which would use the cash to buy cheap wholesale groceries in one market and then re-sell them in another for more than the cost of transporting them. To reassure investors, Shapiro produced falsified financial statements that disguised the fact that Capitol Investments consistently lost money and had effectively ceased trading after 2005. In reality, the entire scheme was a Ponzi-style fraud that repaid investors with newly raised cash and funded Shapiro’s lavish lifestyle – among his possessions were a $5m mansion and a $1m yacht.
What happened next?
By 2008, the supply of new cash had started to dry up and older investors started demanding their money back. Unable to make interest payments, Shapiro tried stalling them, proffering various promises and excuses, and giving away some of his jewellery and even his condo in the Bahamas. Eventually, however, the numbers of irate investors mounted and lawsuits forced Capitol into bankruptcy in November 2009. Meanwhile, a tip-off from an irate investor prompted an FBI investigation, which led to Shapiro being convicted of fraud and sentenced to 20 years in prison in 2011.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Lessons for Investors
Over a decade of operations, Capitol Investments USA took in around $880m of investors’ money. It paid out $769m in interest payments, but investors were still left with net losses of $100m. Many people lost their entire life savings and were forced to sell their homes. Amazingly, Shapiro’s scheme was itself almost a carbon copy of a scam run by another Florida-based grocery-diverting company, Premium Sales Corp. It operated in the early 1990s and ended up going bankrupt, owing more than $400m. Clearly, it’s a good idea to pay attention to financial history.
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.
He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.
Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.
As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.
Follow Matthew on Twitter: @DrMatthewPartri
-
UK mid-caps: an improving outlook
UK mid-caps have perked up and the rally may run further, but long-term investors should remain selective
By Cris Sholto Heaton Published
-
The tobacco industry is going smoke-free - how to profit from it
Tobacco companies have realised their traditional products are on the wane. But new opportunities have opened up – and should prove lucrative
By Rupert Hargreaves Published
-
Is it time to invest in creative industries?
Any industrial strategy should not overlook the creative industries, one of our top national assets
By David C. Stevenson Published
-
Is Mercia Asset Management set for success?
Mercia Asset Management helps the government fund smaller companies in Britain’s regions. Should you invest?
By Rupert Hargreaves Published
-
British stocks set for a boost
British stocks are due for a bounce as the UK looks more stable compared to many economies
By Alex Rankine Published
-
Ocado shares jump by a fifth
Ocado takes a turn for the better after attractive profit forecasts were announced
By Dr Matthew Partridge Published
-
The AI boom is on borrowed time
The hype around the AI boom could be on its way out – but why?
By Alex Rankine Published
-
Diploma: a blue-chip set for strong growth
Diploma, whose niche products include seals and fasteners, serves an array of growth markets. Should you invest?
By Dr Mike Tubbs Published