Browsing April 22nd, 2010
Capitol Investments USA, Inc. and Nevin K. Shapiro
Zamansky & Associates has launched an investigation into the business practices of Capitol Investments USA, Inc., its founder Nevin K. Shapiro, and its various affiliates based on allegations that the firm operated a $900 million Ponzi scheme. The firm claimed to deliver outsized returns to investors through a so-called grocery diverting business, but according to the SEC, it used investors’ money to fund a lavish lifestyle that included a $5 million house and $1 million boat.
Most Ponzi schemes of any scale are typically aided or abetted by large financial institutions. Zamansky & Associates is examining what institutions may have worked with Capitol Investments USA and Nevin Shapiro, such as brokers that allegedly were paid as much as $13 million in commissions, and other financial services providers that may have either contributed to Mr. Shapiro’s alleged fraud directly or were grossly negligent.
Moreover, some victims used their retirement accounts to invest in Capitol Investments USA, which usually requires a “custodian” who must oversee the investment to ensure it is legitimate. We are investigating whether these firms are potentially liable for losses.
If you are a victim of the alleged fraud orchestrated by Nevin K. Shapiro, or are a customer/investor in Capitol Investments, USA, Inc., contact Zamansky & Associates.
Ethical Showdown: Goldman vs. Bear
Goldman Sachs has long reigned supreme on Wall Street because of the widespread perception and belief that they employed the smartest guys in the business. But the SEC’s fraud charges against the firm have exposed another possible reason for the firm’s stratospheric success: The firm is more ethically challenged than some of its rivals.
We will let the courts decide the legal merits of the fraud charges the SEC filed against Goldman last week, but let’s consider the moral propriety of the firm selling its clients mortgage securities that hedge fund powerhouse John Paulson had determined were most likely to fail. Goldman steadfastly maintains that it had no legal obligation to disclose that Paulson was the designer of the CDOs, but at least one competitor reportedly couldn’t stomach concocting such an arrangement.
In his book, “The Greatest Trade Ever,” Wall Street Journal reporter Greg Zuckerman discloses that Paulson first approached Bear Stearns trader Scott Eichel to structure a package of highly toxic securities with a high likelihood of failure, but Eichel and his colleagues apparently wouldn’t do the deal. According to Zuckerman:
Mr. Eichel said he felt it would look improper for his firm. “On the one hand, we’d be selling the deals to investors, without telling them that a bearish hedge fund was the impetus for the transaction, Mr. Eichel told a colleague; on the other hand, Bear Stearns would be helping Mr. Paulson wager against the deals.”
Zuckerman says that Deutsche Bank and other unnamed banks also worked with Paulson to structure CDOs that he could short, which, if true, raises the question as to why the SEC has singled out only Goldman for fraud. Bears Stearns was hardly the paragon of ethical propriety (it marketed hedge funds filled with dubious subprime mortgage securities to unsuspecting retail investors), but its impressive that they chose to turn down a lucrative fee arrangement rather than engage in a transaction they perceived as morally wrong. Goldman and Deutsche Bank apparently had no such ethical compunctions.
Ironically, Eichel now reportedly works for Royal Bank of Scotland, which acquired a business unit of ABN AMRO that was on the losing side of the Paulson designed instruments. Goldman maintains that it also lost $90 million on the deal, but I’m skeptical about the validity of the claim; the firm has long bragged about its risk management and its ability to hedge its trades. So while perhaps Goldman did indeed lose $90 million on one side of the transaction, it’s more than likely that they made it up on another.