Alleged Ponzi Schemer Could Be Granted Bail: Judge

The head of a private investment firm accused of bilking clients who invested $370 million with his companies should be detained until his lawyers and prosecutors agree on bail conditions, a U.S. judge ruled Thursday.

Agape World chief executive officer Nicholas Cosmo, 37, was arrested Monday night and charged with fraud, one of a rash of Ponzi schemes investigators across the United States say they have uncovered in the wake of the financial meltdown.

Authorities on New York's Long Island accused Cosmo of using investor money for personal expenses such as jewelry, limousine rides and hotel stays, and to pay more than $212,000 in court-ordered restitution to investors following a prior fraud conviction.

Federal prosecutors, the FBI and the U.S. Postal Inspection Service said Cosmo falsely promised substantial returns to investors through what were purported to be short-term, high-interest "bridge" loans to businesses provided by his Agape World and Agape Merchant Advance firms.

U.S. Magistrate Judge E. Thomas Boyle said in court in Central Islip, N.Y., that the government had presented strong evidence in its case but "not enough to warrant detention."

He said Cosmo did not appear to be a flight risk, as the government had argued, because the money manager had strong family ties to the New York area and had been aware he was under federal investigation for several months and had not tried to flee.

The judge said a proposed $750,000 bail package for Cosmo backed by his family members was inadequate. He ordered Cosmo detained until his lawyers and prosecutors craft an agreement on the conditions for his release.

Cosmo wore an orange jail jumpsuit during the hearing and did not speak. No further bail hearing was scheduled.

Prosecutors said in a criminal complaint that while Cosmo's firms offered loans, only a small number of loans were actually extended to businesses.

The complaint said money deposited with the firm by new investors was used to pay earlier investors, the hallmark of a classic Ponzi scheme.

The Commodity Futures Trading Commission (CFTC) also has brought civil charges against Cosmo and his firms. The federal court complaint seeks monetary penalties and restitution to clients.

The alleged swindle still pales compared to the purported $50 billion worldwide Ponzi scheme operated by New York money manager Bernard Madoff, who is under house arrest in Manhattan after being charged with securities fraud.

Authorities say that Cosmo took in about $370 million over the past several years. The number of investors hurt by the fraud may be much more than the 1,500 originally estimated, prosecutors said in court papers.

They said most of the money appears either to have been lost on speculative investments or misappropriated in other ways. As of last week, only about $746,000 remained in his firm accounts, the government said.

Attending the hearing, investor Frank Ingrao said he had lost much of his life savings and wanted to see Cosmo in person.

"If you had lost that kind of money you'd want to be (here), too," said Ingrao, who said he served as a U.S. Marine in Falluja, Iraq, and is now a New York City police officer.

Ingrao, 27, said he had invested $63,000 in Cosmo's firm after returning from Iraq in 2006. He withdrew $20,000 last year, but still thought he had more than $177,000 left through investment gains, money he had planned to use to buy a house.

Cosmo's lawyer Steven Feldman Wednesday filed a brief asking the judge to release Cosmo on $750,000 bond signed by his wife, father, sister and brother-in-law and secured by one or more of their homes.

"We are gratified that the court agreed with our position that Mr. Cosmo is neither a flight risk nor a danger to the community and therefore is entitled to bail under appropriate conditions," the defense lawyer said in a statement.

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