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.  

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.

Recommended

Coinbase, America’s largest crypto exchange, is going public. Should you invest?
US stockmarkets

Coinbase, America’s largest crypto exchange, is going public. Should you invest?

Cryptocurrency exchange Coinbase is to list on the Nasdaq stock exchange, hoping to cash in on the current crypto-mania. Saloni Sardana looks at wheth…
13 Apr 2021
Will Shu: Deliveroo CEO and its first delivery rider
People

Will Shu: Deliveroo CEO and its first delivery rider

City analyst Will Shu was sick of working long hours at Canary Wharf and having to make do with what was left on the shelf in Tesco for dinner. So he …
10 Apr 2021
The MoneyWeek Podcast: picking stocks is fun, but you need to do your homework
Investment strategy

The MoneyWeek Podcast: picking stocks is fun, but you need to do your homework

John Stepek talks to Steve Clapham, investor, analyst and author of The Smart Money Method, about the dangers in picking individual stocks and why you…
8 Apr 2021
How to find companies that can thrive in the post-Covid world
Advertisement Feature

How to find companies that can thrive in the post-Covid world

Many sectors of the global economy will return to something resembling pre-pandemic status, but others will take far longer to recover.
8 Apr 2021

Most Popular

The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021
Central banks are rushing to build digital currencies. What are they, and what do they mean for you?
Bitcoin

Central banks are rushing to build digital currencies. What are they, and what do they mean for you?

As bitcoin continues to soar in value, many of the world’s central banks are looking to emulate it by issuing their own digital currencies. But centra…
8 Apr 2021
Four investment trusts for income investors to buy now
Investment trusts

Four investment trusts for income investors to buy now

Some high-yielding listed lending funds have come through the crisis with flying colours. David Stevenson picks four of the best.
12 Apr 2021