Archive for July 16th, 2009

LOS ANGELES (Reuters) — Starbucks Corp next week will open a new neighborhood cafe pilot store that will feature beer and wine, night-time hours and live entertainment such as music and poetry readings.That Seattle cafe, called 15th Avenue Coffee and Tea, takes its name from its street address and borrows heavily from neighborhood coffee shops.A Starbucks (SBUX, Fortune 500) spokeswoman said the cafe and any others that follow, would return to making espresso drinks by hand and sell products without the Starbucks logo.The coffee chain, which has been slashing costs and closing hundreds of poorly performing Starbucks outlets amid a long recession, said the first pilot store is a renovated Seattle Starbucks that was slated to be shuttered by year end.0:00
/2:25Community saves its cafeStarbucks stores around the world currently do not serve alcohol.

Source:CNN

NEW YORK (Reuters) — IBM reported a 13% fall in revenue amid a decline in corporate spending, but cost cuts and a shift to more profitable businesses helped it achieve higher-than-expected earnings, and the company raised its outlook for the full year.International Business Machines Corp. (IBM, Fortune 500) said it now expects full-year earnings of “at least 9.70″ per share, up from its previous outlook of 9.20, helping its shares rise 3% in after-hours trading Thursday.IBM’s second-quarter revenue fell to 23.3 billion from 26.8 billion a year earlier. That was slightly lower than analysts’ average forecast of 23.5 billion, according to Reuters Estimates.But net profit for the quarter rose to 3.1 billion from 2.8 billion in the year-ago quarter.Profit per share rose to 2.32 from 1.97, much higher than the average Wall Street forecast of 2.01 per share, according to Reuters Estimates.IBM has fared better than many other technology companies amid the recent economic downturn, helped by its growing focus on profitable software and services like outsourcing and technology support rather than increasingly commoditized hardware.Its gross profit margin rose to 45.5% from 43.2% a year earlier, it said.

Source:CNN

NEW YORK: Google posted second-quarter sales and profit that beat Wall Street’s forecasts Thursday, despite a tough environment for advertising. Net income for the three months ended June 30 rose 19% to 1.48 billion, or 4.66 per share, compared with 1.25 billion, or 3.92 per share, for the same period a year ago. Without one-time charges, Google (GOOG, Fortune 500) reported earnings of 5.36 per share. Analysts polled by Thomson Reuters, who typically strip out special items from their forecasts, were looking for 5.09 per share.Sales rose 3% to 5.52 billion from 5.37 billion for the year ago period. Excluding commissions paid to advertising partners, sales totaled 4.07 billion, which beat analysts estimates of 4.06 billion. “Google had a very good quarter, especially given the continued macro-economic downturn,” Eric Schmidt, chief executive of Google, said in a written statement. “These results highlight the enduring strength of our business model and our responsible efforts to manage expenses in a way that puts us in a good position for the economic upturn, when it occurs.”Shares closed up 4.43 to 442.60 a share in regular session trade. Investors are looking closely at the big tech bellwethers’ second-quarter results for signs of a turnaround. On Tuesday, the world’s largest chipmaker, Intel (INTC, Fortune 500), posted a decline in sales but was optimistic that business was picking up headed into the second half of 2009. IBM (IBM, Fortune 500) also reports second-quarter results Thursday.0:00
/3:01Google bets on cloud computingAd sales account for almost all of Google’s revenue. In the fourth quarter of 2008, the company posted its first-ever quarterly profit drop, as it was hard hit by a pullback in advertising dollars during the recession. The company remains the dominant Internet search leader, with 65% of market share in June, according to a report released Wednesday by online data tracker comScore. Yahoo (YHOO, Fortune 500) is holding steady in second place, with 19.6%, of the market, and Microsoft’s (MSFT, Fortune 500) new search engine, Bing, scooped up 8.4%.

NEW YORK (Fortune) — CIT and its many borrowers are in limbo. A day after the cash-strapped small business lender had its bailout hopes deflated, CIT Group (CIT, Fortune 500) appeared headed for a bankruptcy filing. Credit ratings agency Fitch cut its rating on CIT debt, saying a default appears “imminent or inevitable.” A spokesman for the New York-based company didn’t reply to a request for comment. CIT shares lost three-quarters of their value in trading Thursday and were fetching as little as 31 cents each at one point. Though the century-old firm has sharply cut back its lending over the past year, a bankruptcy filing could add to the pressure on small businesses at a time when they have been shedding hundreds of thousands of jobs every month. “Things don’t look good for CIT,” said Jerry Reisman, a partner at law firm Reisman, Peirez & Reisman in Garden City, N.Y. “But they look downright perilous for the small businessman.” Small businesses — those employing fewer than 50 people — have cut 1.4 million jobs since December, according to data from payroll processor ADP’s latest monthly employment report. Small and midsize businesses — those employing fewer than 500 people — have lost 3 million jobs over the same period, according to ADP data. Small and midsize businesses are among CIT’s chief customers, and a lack of access to credit could force many out of business, Reisman said. He said many CIT customers would have trouble getting loans elsewhere in the best of times, but their pain could be acute in a deep recession in which banks aren’t lending and sales have dwindled at many businesses. “If you assume CIT customers tend to be a little riskier than the typical community bank borrower, then some of them won’t be bankable,” said Bill Dunkelberg, chief economist for the National Federation of Independent Businesses. According to several news reports, CIT is trying to line up a capital infusion from private investors. But observers were skeptical about the company’s chances. Before Wednesday, Wall Street had assumed the government would provide support to CIT, given its earlier receipt of 2.3 billion in federal funds and its connection to small businesses. Investors took the Treasury Department’s decision not to do so as an indication that its books have taken a sharp turn for the worse. “Although we had originally thought CIT would have enough liquidity to survive through year-end, the recent negative press appears to have accelerated the liquidity drain with deposits fleeing and clients drawing down as much credit as possible before bankruptcy,” Stifel Nicolaus analyst Chris Brendler wrote in a note to clients Thursday. “We think CIT’s poor credit quality ultimately led to its demise.” Complicating CIT’s outlook is the tepid market for lending to bankrupt companies, known as debtor in possession, or DIP, financing. Getting DIP financing has become more difficult since the credit markets collapsed in mid-2007. Ironically, CIT has been a leading DIP lender. Last week it, along with GE (GE, Fortune 500) Capital and Bank of America (BAC, Fortune 500), provided a 100 million line of credit to retailer Eddie Bauer (EBHIQ), which filed last month for its second Chapter 11 reorganization in six years. A spokesperson from Eddie Bauer didn’t comment. 0:00
/2:01CIT lifeline cut shortMark Sunshine, president of First Capital, a lender in Boca Raton, Fla., said Treasury could support small businesses without bailing out CIT investors by providing DIP financing in the event of a CIT bankruptcy filing. Sunshine said federal financing of the bankruptcy loan could enable an orderly workout at CIT over two years or so. Without such a backstop, he said, small business customers that sold their accounts receivable to CIT in exchange for upfront cash — a transaction known as factoring — could find themselves in the unenviable position of seeking repayment in court along with other creditors. “Without Treasury, it isn’t going to happen,” Sunshine, whose firm is a CIT competitor, said of the DIP loan.Whether the problems at CIT end up taking another bite out of the economy will depend on how the company’s case is resolved. Dunkelberg noted in a report last week that data from the NFIB’s small business survey don’t support talk of a credit crunch — though that was before CIT’s brush with failure. “This could certainly contribute to a constriction of credit, but we’ll just have to see how it plays out,” he said.

Source:CNN

NEW YORK (Reuters) — The United States may need a second fiscal stimulus worth 200-250 billion around the end of the year, but the worst of the economic and the financial crisis is already behind us, leading economist Nouriel Roubini of RGE Global Monitor said on Thursday.Roubini, one of the few economists who foretold much of the current financial turmoil, said a second stimulus would be necessary to boost a deteriorating labor market.The stimulus “can not be too small, but it can not be too large,” Roubini said, or financial markets will become too worried about the sustainability of the U.S. debt.

Source:CNN

NEW YORK: Dealers who have been muscled out at Chrysler Group and General Motors are trying to get Congress to force the automakers to take them back.The push by the dealers to reverse the cuts has garnered strong bipartisan support, especially from powerful Democratic leaders Financial Service Committee Chairman Barney Frank and House Majority Leader Steny Hoyer.The measure, which restores franchise rights that were stripped out as part of the bankruptcy process, was attached as an amendment to an appropriations bill to fund a variety of federal regulators, including the Securities and Exchange Commission. It is expected to easily pass the House Thursday. 0:00
/6:45GM refocuses on productIt faces more opposition in the Senate, where Senate Majority Leader Harry Reid said earlier this week the measure is not a priority and that he was satisfied with the decision to have the automakers use bankruptcy to shed dealers.”When you have a bankruptcy, there are winners and losers. That’s what happened. And there were some losers. It’s unfortunate, but that’s the way the bankruptcy courts operate,” he said.But Reid’s spokesperson backed away from those comments Thursday, saying that the majority leader was speaking off the cuff.Even some of the measure’s supporters acknowledge that many of the dealers being cut are unlikely to stay in business for much longer or restart their businesses.The Chrysler Group dealers cut during the bankruptcy process were forced to stop selling Chrysler, Dodge and Jeeps in June while virtually all GM dealers being cut lose will be phased out by between January and September 2010.”I think a number of them can be reopened, but it’s not the goal of them to have them all reopen,” said Rep. Rep. Steven LaTourette, the Ohio Republican who inserted the dealer language into the appropriations bill.But if the franchise rights are restored, the automakers would have to spend millions of dollars to buyout the dealerships it wants to cut. When GM dropped the Oldsmobile brand at the start of the decade, for example, it spent about 1 billion to do so — most of it in payments to dealerships.Dealers and their supporters argue that larger dealership networks do not cost the automakers any money, and that it can actually increase their sales. They say it is unfair for state franchise laws, which protected their investment in the dealerships, to be thrown out in the bankruptcy process.They also argue that at a time of rising job losses, it doesn’t make sense to force dealerships to close, throwing more people out of work. The average dealership has about 50 employees, meaning the closing of 2,000 dealership could cost more than 100,000 jobs nationwide.The dealers are well positioned to fight the battle in Congress. They are found in each congressional district, and many are successful business owners that have been supporting members of Congress since they first ran for for local elected office. Their influence in the Senate is generally acknowledged to be somewhat less than in the House, though.The automakers and most auto industry experts argue that GM and Chrysler were hurt by a bloated dealership network that is a remnant of years gone by when they both had a much larger share of U.S. vehicle sales.They say cutting the dealerships allows the surviving dealers to sell and service more vehicles, making them more profitable in a way that allows them to spend money on the advertising and their facilities needed to attract sales.”If this legislation is enacted, it would put our viability at serious risk,” said Greg Martin, spokesman for GM’s Washington office. “Having the right number of dealers in the right location is essential to our ability to compete.”The Obama administration, which pushed the automakers to make even deeper cuts in dealer networks than they originally proposed, is fighting the dealers’ efforts in Congress.”The decision to invest taxpayer dollars into these companies required all stakeholders to make difficult sacrifices, and it would set a dangerous precedent, potentially raising legal concerns, to intervene into a closed Judicial bankruptcy proceeding on behalf of one particular group at this point,” the administration said in a statement Wednesday.The two automakers are also doing what they can to fight the dealers’ efforts in Congress.GM CEO Fritz Henderson was on a conference call with the Michigan delegation Wednesday evening, during which he was pushed by some of the company’s greatest defenders in Congress to reach a deal with dealers to try to make them drop the legislative effort.Some of the leading proponents of the measure in Congress say they also hope that the automakers can come up with a compromise solution to satisfy dealers and make the legislation unnecessary.”Legislation is a hammer. I would prefer not to use a hammer,” said LaTourette. “I’d rather use a scalpel. Let [the automakers] come in and work this thing out.”But a spokesman for the National Automobile Dealers Association said his group, which flooded Capitol Hill with more than 200 dealers visiting members of Congress earlier this week, said his group is committed to passing some form of the legislation to restore their rights.”We are not interested in making a deal,” said NADA’s Bailey Wood. “There is an immense amount of support and it is growing on a daily basis. There is absolutely no reason we need to make a deal.”Even if the language is stripped out of the appropriation bill when it goes to the Senate, a stand-alone version of the bill has been co-sponsored by more than half of the House members and 24 senators so far. NADA is pushing to bring more than two-thirds of the House on as co-sponsors to prove they have the votes to override a veto.
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NEW YORK (Fortune) — Only a fool would bet against the American people’s ingenuity and persistence in figuring a way out of our economic mess. But the last year has been humbling all the same. Some of our most common assumptions, including the certainty of monetary and fiscal stimulus, are being challenged.For example, for decades economists including Milton Friedman have argued that if policymakers in the 1930s had not run such a restrictive monetary policy, things might have turned out differently. Likewise, Keynesians add that if Congress hadn’t tried to balance the budget in 1936, the Great Depression might have ended a lot sooner.Today, no one can accuse policymakers of committing such blunders. The U.S. is running the Niagara Falls of fiscal and monetary policies, yet the results to date have been discouraging.Begin with prices, which have been dropping fast. From August 2008 to June 2009, the Consumer Price Index dropped from 5.3% to negative 1%. During the comparable period in 1929-30, the CPI dropped from zero to only a negative 1.8%.From July 2008 to June 2009, unemployment jumped from 5.8% to 9.5%. During the comparable period from 1929-30, the rate jumped from 2.3% to only 5% (and later grew much higher).In other words, prices are dropping and unemployment is rising at a rate worse than during the beginning years of the Great Depression. This is happening despite extraordinarily aggressive fiscal and monetary stimulus, which is sure to have serious unintended consequences, including budget deficits and debt almost beyond belief.0:00
/0:49Strong growth in ChinaThe world is fixated on U.S. long-term interest rates, which have increased dramatically since the beginning of the year. Why are rates rising? The Chinese argue that global financial markets fear that the Federal Reserve will eventually monetize the Obama Administration’s quadrupled budget deficits, producing higher inflation.But nothing about budget deficits is simple. The truth is the deficit in recent decades has actually been an unreliable economic predictor. For example, interest rates (the 10-year Treasury bond yield) never dropped below 5.25% the entire eight years of the Clinton Administration, which produced budgetary surpluses. Yet at one point during the deficit-ridden George W. Bush administration, long-term interest rates declined to nearly 3% — and at a time when the economy was prosperous.Running a permanent policy of large budget deficits is a risky way to operate an economy. But remember Warren Buffett’s warning several years ago about America’s budget deficits? He bet big on a dollar free-fall, arguing that foreign investors would flee the U.S. in droves. Buffett for a time lost a reported 1 billion dollars on the bet (before the dollar switched direction again, which is the volatile nature of a reserve currency).Why has the deficit been such an inefficient barometer? The experts underestimated America’s ability to import capital and to innovate. Foreigners were indeed concerned about America’s deficits. Turned out they cared even more about the attractiveness of U.S. asset markets relative to those elsewhere.America traditionally has been a magnet for global investment and savings. Several years ago, a World Economic Forum survey concluded that despite debt, deficits, and a low savings rate, the U.S. still ranked first in global competitiveness and as a target for the world’s capital. The reasons: labor market flexibility, higher education, a benign political environment largely free of class warfare, innovative strategies, quality of corporate management, and predictable legal and patent systems. China ranked 34th.Yet here’s the essential point: Just because we dodged the deficit bullet in the past is no guarantee for the future. That’s not only because of the astounding size of today’s projected fiscal imbalances and the likelihood of rising global competition for credit, with soaring interest rates, once the world economy begins to recover. There are also real concerns about America’s future as a destination for global capital. Washington’s heavy-handed decision during the auto bailout negotiations to trample the contractual rights of bondholders can’t be globally reassuring. Today’s new tax and regulatory climate — anti-business and anti-foreigner — doesn’t help either.There is also the question of whether America, even with a plan of long-term fiscal discipline, can grow out from under its massive deficit. We did after World War II, but that was after four years of pent-up demand followed by an unprecedented optimism. By contrast, consumers today are in a gloomy period of long-term deleveraging. American households have been bludgeoned collectively to the tune of 12 trillion. Future U.S. potential growth rates are likely to be modest.With the consumer sidelined, that leaves business investment as the only engine to provide robust growth for deficit reduction while making America an attractive global investment and savings target.President Obama is enamored of government investment in new green technologies, but his problem is timing. It could take years for these efforts to come on stream, including the sorting out of likely winners from losers. Meanwhile, our economy, green shoots and all, could go over a cliff.As Bill Clinton discovered in the 1990s, private investment can turbocharge an economy, quickly and powerfully. That’s why Barack Obama needs to strategically pivot. For starters, he must rein in Washington’s new anti-capitalist populism. Then he needs to engage in a new love affair with private sector investment, innovation, and entrepreneurial risk. If he pivots now, he can move us out of this quagmire.David Smick is chairman and CEO of Johnson Smick International, Inc., a Washington, D.C. policy advisory firm, and the author of The World Is Curved: Hidden Dangers to the Global Economy.

Source:CNN

NEW YORK: The economy seems to be getting better. That’s what Wall Street is telling us. Stocks soared Wednesday thanks to a slew of decent earnings reports. That’s also what C Street — home of the Federal Reserve — is telling us. In the minutes from the Fed’s last meeting, released Wednesday afternoon, policymakers indicated that the recession could be over “before long.”But on Main Street, people seem to have a decidedly different view. It’s hard to find things to be happy about when the unemployment rate is at a more than quarter-century high of 9.5% and the housing market remains in shambles.The mess in housing — foreclosures in the first half of the year were up 15% from the first six months of 2008 — is something that some fear could keep a lid on an economic recovery. So even though investors, CEOs and Fed chair Ben Bernanke may be seeing green shoots everywhere they look, many average Americans have to squint very hard in order to find them. Just try telling a Zillow.com-obsessed home owner who’s watched the value of his home continue to plummet in recent months that the economy is getting better.”The big unknown variable in the economy still is housing,” said Haag Sherman, managing director with Salient Partners, an investment firm based in Houston. “The worst may be behind us with subprime loans, but I don’t think housing has found a bottom. We could have a recovery in Corporate America that’s much narrower than the recovery in the broader economy.”Talkback: Are you thinking of buying or selling a house now or do you think prices will fall much further? Leave your comments at the bottom of this story. Sherman pointed out that banks are starting to experience waves of delinquencies and defaults with higher-quality mortgages such as alt-A loans and prime loans. To that end, JPMorgan Chase (JPM, Fortune 500), which posted strong second-quarter results Thursday morning thanks to healthy gains in its investment banking division, reported some fairly dismal numbers out of its consumer lending unit.The bank said that net charge-offs, a figure that measures the amount of debt written off as bad, were 1.3 billion from home equity loans, double the 511 million of a year earlier. And net charge-offs related to prime mortgages quadrupled to 481 million from 104 million last year.JPMorgan Chase is widely considered one of the healthier banks around. So if it’s experiencing more difficulties in its home loan business, it’s likely that two of the more troubled big banks, Citigroup (C, Fortune 500) and Bank of America (BAC, Fortune 500), will also disclose more bad news from their mortgage units when they each report their second-quarter numbers Friday morning.Rising delinquencies could lead to more foreclosures. If so, it’s harder to envision a scenario where prices will rebound since foreclosed homes just add to the inventory of unsold real estate. Steven Kyle, professor of applied economics at Cornell University, said the fear that prices will fall further is discouraging some homeowners from even putting their homes on the market because they’re worried about the existing glut of homes.Kyle added that with unemployment nearing 10% and likely to exceed that level before long, he worries many consumers won’t be willing to buy homes — even if prices stay relatively affordable and mortgage rates remain fairly low.”Housing is not going to go rocketing off anytime in the near future. Interest rates are already low, so you won’t get a boost from that. And unemployed people aren’t buying houses,” Kyle said. Sherman said that, ironically enough, more talk of an economic recovery could actually hurt chances of a housing rebound, since it could lead to higher rates in the future. That’s because some fixed-income investors may start to fear inflation and start selling long-term bonds, which would drive up their yields. Bond rates and prices move in opposite directions. In fact, it’s already happened to some extent. The yield on the U.S. 10-year Treasury has surged from a low of about 2% in December to about 3.5% currently. Many fixed-rate mortgages are closely pegged to longer-term Treasury rates, so a further dumping of Treasurys won’t help prospective home buyers. “You can have housing stabilize for a bit and then take another leg down. Continued affordability is what we want to see, but if bonds sell off, that weighs on affordability,” Sherman said. 0:00
/4:19Housing market’s false hopeNonetheless, there are some pieces of good news about the housing market. The National Association of Home Builders reported Thursday that builder confidence in July was it its highest level since last September. In addition, finance professors Paola Sapienza of the Kellogg School of Management at Northwestern University and Luigi Zingales of the University of Chicago’s Booth School of Business, said consumers are much more confident about the housing market now than they were just a few months ago. The professors run a quarterly survey of consumers that looks at their trust in the financial system.Sapienza said that a majority of consumers polled in June thought that prices in their market would be stable over the next 12 months and that only 26% thought prices would decline. By way of comparison, nearly half of the consumers surveyed in December were predicting price drops, Sapienza said.We’ll find out even more about the state of housing Friday morning when the Census Bureau reports its latest figures on housing starts and building permits. Both numbers are key measures of potential demand for new homes.Economists surveyed by Briefing.com are forecasting that the number of permits rose slightly in June to an annualized rate of 524,000 from 518,000 in May and that starts dipped a tad last month — from a rate of 532,000 in May to 530,000 in June. The consensus estimates for both permits and starts are considerably higher than the record lows set in April. So as long as the June numbers are close to forecasts, one could make the case that the housing market is stabilizing and that the worst may be over.But as I pointed out in Wednesday’s column about earnings, stabilization is not the same thing as a recovery. And even though Wall Street still seems willing to subsist on a diet of green shoots salad, consumers are hungering for more substantial evidence of a recovery.”The end of the world didn’t in fact happen so people got more optimistic earlier this year. But to say the end of the world was avoided doesn’t mean we’re now swimming in rose petals,” Kyle said. “The real estate market is still looking rocky. The danger is we just bump along in this stagnating saggy state for awhile.” And as long as that’s the case, consumers are unlikely to feel much better about the economy.”People are still nervous. We haven’t seen an actual turn in housing yet, just signs of bottoming,” said Brad Sorensen, director of market and sector research with Charles Schwab. “This isn’t rocket science but an improvement in the housing market will make consumers feel more confident and more willing to spend and that will have a trickle down effect on the overall economy.” Talkback: Are you thinking of buying or selling a house now or do you think prices will fall much further?
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NEW YORK: Home mortgage rates saw an up-and-down week but ended almost unchanged, according to a report released Thursday.The average 30-year fixed mortgage slipped to 5.58% from 5.59% the week prior, and the 15-year fixed held at 4.93%.The lack of change belies rates’ “yo-yo movement” over the week, said the weekly national survey from Bankrate.com.”It was an active week for mortgage rates,” the report added. “After first declining on continued economic weakness, mortgage rates reversed ground following corporate earnings that weren’t as bad as feared.”As a result, investors have flocked to the safety of government and mortgage-backed bonds. Mortgage rates are closely related to yields on long-term government debt.Volatility is likely to continue amid uncertain recovery sentiment and mixed economic data, the report warned.Current rates remain much lower than last year’s levels, when the average 30-year fixed mortgage rate was 6.42%, according to Bankrate.com.At the current rate of 5.58%, the monthly payment on a 200,000 mortgage would be 1,145.63, or about 108 less than the monthly payment at last year’s rate.Adjustable-rate mortgages: ARMs continue to post mixed results, the report said, with the average 1-year ARM rising to 5.22% from 5.18%, and the 5-year ARM falling to 4.98% from 5.05%.Have you exhausted your unemployment benefits? We want to hear about your experiences. E-mail your story to realstories@cnnmoney.com and you could be part of an upcoming article. For the CNNMoney.com Comment Policy, click here.

Source:CNN

NEW YORK: Bernard Madoff may have made headlines as the biggest Ponzi schemer in history, but there are plenty of other cases to share the limelight.There is no exact dollar figure on how much Madoff bilked his investors, but it’s been estimated in the tens of billions. Most other pyramid-style scams are run by mini-Madoffs, most of whom measure their take in the millions.A Ponzi schemer masquerades as a legitimate money manager, using fresh cash from unsuspecting investors to make payments to more mature investors, which creates the false appearance of legitimate returns. Some promise annual returns as high as 80%.”You see a whole range: some of them start small and build over time; some of them have got a good story and they get huge investments,” said David Nahmias, U.S. Attorney in the northern district of Georgia, who has prosecuted Ponzi scams. “A lot of these schemes start with trusted people. If you see someone investing their family’s money, or their church’s money, then it’s someone you’re more likely to trust.”Here are some of the alleged Ponzi cases currently making their way through federal courtrooms across the country:Steinger and alleged accomplices, 1.25 billion, FloridaIn late 2008, the U.S. attorney for the Southern District of Florida indicted four defendants in one of the largest alleged Ponzi schemes in recent history.Joel Steinger, a white-collar ex-con and accused ringleader, his brother Steven Steiner and two lawyers, Michael McNerney and Anthony Livoti, are accused of ripping off 30,000 investors in an elaborate life insurance scam through Fort Lauderdale-based Mutual Benefits Corp., which was shut down. All pleaded not guilty, and the case is ongoing.0:00
/1:17Madoff gets the max”The government is simply overreaching in this case,” said Jose Quinon, attorney for McNerney. “He’s totally innocent of the charges in this case.”Livoti’s lawyer, Joel Hirschorn, said there was no Ponzi scheme and that his client committed no crime. Steinger’s lawyer Ed Shohat declined to comment. Steiner’s lawyer, Richard Lubin, was unavailable.Nicholas Cosmo, 370 million, New YorkAnother Ponzi scheme was allegedly perpetrated by Nicholas Cosmo, owner of two funds, Agape World, Inc. and Agape Merchant Advance, LLC, in Hauppauge, New York. Cosmo promised his 1,500 investors annual returns of up to 80%, according to the U.S. Attorney in the Eastern District of New York, who called the offer “too good to be true.” Cosmo was charged with stealing — not investing – hundreds of millions of dollars.Robert Nardoza, spokesman for the U.S. Attorney’s office, said that Cosmo pleaded not guilty and is incarcerated because he has not met bail conditions. Phone messages to Cosmo’s lawyer were not returned.Anthony Demasi, 4.7 million, IllinoisAnthony Demasi of Tsunami Capital LLC, a trader in commodity futures, allegedly told investors that one of his trading pools made a profit of 172% — an astronomical claim by any standard. In reality, the pool had no profit at all and was part of a multi-million dollar Ponzi scheme, according to the U.S. Attorney’s office in the Northern District of Illinois. The feds say that Demasi poured much of the money into his Chicago nightclubs and blew the rest on gambling.Randall Sanborn, spokesman for the U.S. Attorney in Chicago, said Demasi pleaded not guilty and is free on bail but under home confinement. A court hearing is set for Sept. 9. Messages to Demasi’s lawyer were not returned.Anthony Vassallo, 40 million, CaliforniaAt the age of 29, Anthony Vassallo is unusually young for a Ponzi defendant. In March, the federal authorities charged him with stealing 40 million from 150 investors — many of whom he met in church. He allegedly spent his take on a 103,000 Lexus and a 24,000 donation to the Church of Jesus Christ of Latter-Day Saints in Folsom.But Vassallo pleaded not guilty and is currently out on bail, which was posted by family members, according to the U.S. Attorney’s office in Sacramento. He is due back in court on July 17 for a status report. A spokeswoman for Blackmon & Associates, the law firm representing Vassallo, declined to comment.James Ossie, 25 million, GeorgiaThe U.S. Attorney’s office in Atlanta charged James Ossie, founder of CRE Capital, Inc., in March with running a fast-moving but short-lived Ponzi scheme.Ossie stole 25 million in nine months, according to the feds, who said he offered high-end investment contracts, starting at 100,000 each, and guaranteed return of the deposit with 10% interest in 30 days. But according to the U.S. Attorney’s office, Ossie lost the money almost as quickly, and had only 2 million left when the scam came to an end.Ossie pleaded guilty on May 21 and is scheduled to be sentenced on July 30, according to the U.S. Attorney’s office, which said he had been indicted on 10 counts of wire fraud. According to the firm representing him, Steel Law, he pleaded guilty to one of those counts.David Nahmias, the U.S. Attorney who indicted Ossie, said the Ponzi scammer’s worst enemy is the recession.”The economic situation kind of exposed a number of them, both because investors are asking for their money back, which tends to make Ponzi schemes fall apart, and I think investors are becoming more skeptical of claims of outrageous returns,” he said.

Source:CNN