Great frauds in history: Nevin Shapiro’s groceries scam

published 24 June 2020

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.

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.

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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.

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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