NY financier Cosmo held on Ponzi scheme charge

By Aarthi Sivaraman

CENTRAL ISLIP, New York (Reuters) - The head of a private New York financing firm who was arrested on Monday night has been charged with operating "a classic Ponzi scheme" into which $370 million was invested, U.S. officials said.

Prosecutors charged Nicholas Cosmo, 37, on Tuesday with mail fraud in U.S. District Court in Central Islip on New York's Long Island. If convicted, Cosmo, 37, faces up to 20 years in prison.

"This defendant, who operated a classic Ponzi scheme to enrich himself and his colleagues at the expense of investors, is now in custody and the government's investigation is continuing," U.S. Attorney Benton Campbell in the Eastern District of New York said.

A ponzi scheme is one in which early investors are paid with the money of new clients.

The large amount of money, however, still pales compared with the purported $50 billion fraud masterminded by investment manager Bernard Madoff. Law enforcement officials said they expect to uncover more schemes as the U.S. financial industry declines.

Cosmo's Agape World Inc and Agape Merchant Advance LLC said they made commercial bridge loans and promised interest rate returns as high as 48 percent to 80 percent a year, prosecutors said in a statement.

After spending the night in custody, Cosmo was unshaven when he appeared in court in a black winter coat Tuesday morning. He was ordered held until Thursday, when his lawyers will respond to the criminal complaint and arguments will be heard on whether or not Cosmo is granted bail.

Prosecutors argued that he was a flight risk and "an economic danger to the community." His attorney Steven Feldman said his client was not a flight risk because he had ties to the community and three children.