By PHILLIP BANTZ
Agape World Inc. owner Nicholas Cosmo was arraigned Tuesday in U.S. District Court for the Eastern District of New York on mail fraud charges that carry a 20-year maximum prison sentence.
Cosmo allegedly took more than $380 million from an estimated 1,500 investors who bought into his Ponzi scheme thinking they were investing in high-yield loans.
A Ponzi, or pyramid, scheme pays early investors with money from subsequent investors. New investors are lured with the promise of unusually large short-term returns on their investments.
The scheme was named after the famous swindler Charles Ponzi, who duped New England residents into investing in discount postage stamps in the 1920s.
Adam Wright, a 32-year-old former Keene resident who now lives in Boston, said he first heard of Agape through a friend who went to college with one of the company’s top brokers.
Wright invested $100,000 with Agape and was told that he earned $90,000 in interest on his account since late 2005. Wright said he’s Keene’s largest investor with Agape, and he stands to lose it all.
“I feel bad for bringing it here. If it wasn’t for me, this wouldn’t have gotten to Keene,” he said. “You just want to hook up your friends. I would tell people not to put in more money than they could stand to lose. I’ve still got to take responsibility for what happened.”
Wright said he knows of nine Keene-area residents who invested an estimated total of $120,000 with Agape. Wright said his parents put $35,000 into the company.
“We were getting returns of 14 percent every 60 days, sometimes every 45 days. As things changed and got worse, the returns started coming every 65 days at 12 percent,” he said. “Everybody started getting freaked out about the economy and (Bernard) Madoff and everybody started asking for their money. I guess (Cosmo) didn’t have enough money to shell out.”
Madoff, formerly a powerful Wall Street broker, is accused of masterminding a $50 billion Ponzi scheme that may be one of the biggest cases of fraud in history.
Cosmo’s case is similar to Madoff’s, but on a much smaller scale.
Agape was supposed to be turning a profit through high-interest loans, but Cosmo only issued $10 million in loans and paid $55 million to brokers who recruited new investors, according to a criminal complaint.
Agape transferred $100 million into commodities future trading accounts that Cosmo controlled, and about $80 million of that was lost on bad trades, the complaint stated.
Cosmo allegedly spent investors’ money on jewelry, hotel rooms, limousines, payments to his wife and a private baseball league.
Agape had only $746,000 in the bank as of last Thursday, according to federal prosecutors.
Even as Agape was on the verge of collapse, the smooth-talking Cosmo, who is in his late 30s, was still capable of instilling confidence in the most skeptical investors, Wright said.
“I met him twice in New York. The guy was slick,” he said. “I had a buddy I used to work with and he was a very, very smart guy. He went and sat down with (Cosmo) about a month ago and looked at all the company’s financial statements and he felt so good he gave him $75,000.”
Keene resident Fred H. Haas, 47, said he learned of Agape through Wright, and invested a total of $15,000 in the company over three years.
Haas said he received monthly statements from the company that showed significant increases in his account, which boosted his confidence and kept him investing.
“You got these statements and it all looked very legit,” Haas said. “When the (business plan) was laid out it didn’t seem unreasonable that people would borrow money to close out a deal. If you’re building a $3 million project and need $200,000 to finish it out, then that’s what the company loaned you. It made sense.”
Haas said he was told that Agape charged 18 percent interest on its loans, and 14 percent of the interest came back to investors as profit.
Before he invested in Agape, Haas researched the company online and discovered that Entrepreneurial Magazine ranked it 73rd in its Hot 100 list of the fastest-growing businesses in America last year.
“Keep things simple and your business will encounter fewer speed bumps,” Cosmo told the magazine when asked about his secret to success.
What Haas found while looking into Agape put his mind at ease, he said, but he never thought to check out the company’s owner.
If he had, Haas may have discovered that Cosmo pleaded guilty in 1999 to a federal charge of fraud.
Cosmo was sentenced to a year and nine months in prison, ordered to pay $135,000 in restitution and placed on probation for three years, according to court records. The judge also recommended that Cosmo undergo intensive gambling therapy.
Haas was surfing the Internet late last week when he stumbled across information that showed Cosmo had served prison time.
“I had made a conscious decision last Friday to pull my money out,” said Haas, who hasn’t received the funds. “It just stinks.”
Another Keene resident who requested to remain nameless said he invested $14,000 in Agape in 2006. He said he was leery of the company and its promises of instant wealth from the beginning, but decided to invest after speaking with friends who already had.
“I was suspicious the whole time,” he said. “But when I was talking to people that told me they took out money, and when I put in money and actually got money out, it increased my confidence in it.”
The Associated Press contributed to this report.