Finance news. My opinion.

The SEC and the U.S. Attorney’s office in New Jersey on Wednesday charged a Miami Beach-based businessman with allegedly running a Ponzi scheme that sucked in close to $1 billion.

The Securities and Exchange Commission and U.S. District Attorney Paul Fishman filed fraud charges in New Jersey against Nevin K. Shapiro, founder and president of Capitol Investments USA.

Shapiro is accused of fraudulently offering risk-free annual returns as high as 26% to investors in his grocery diverting operation, a type of business where low-cost groceries are purchased in one region and sold for a higher price elsewhere.

"[Shapiro] used his prominence and prestige to gain investors’ trust in funding Capitol’s grocery-diverting business, but behind their backs he diverted their money to enrich himself," said Eric Bustillo, director of the SEC’s Miami regional office.

Investigators from the U.S. Attorney’s office said more than 60 investors, many of them in New Jersey, sent Shapiro more than $880 million, incurring losses of at least $80 million.

The SEC said that Shapiro’s "lavish" lifestyle included a $5 million house in tony Miami Beach and a $1 million boat, as well as "luxury cars, expensive clothes, high-stakes gambling and season tickets to premium sporting events."

In a classic pyramid-style scheme, the Ponzi scammer uses new investments to pay off existing investors, while claiming that the stolen funds are legitimate returns.

The feds said that Shapiro claimed to make tens of millions of dollars a year through Capitol. In reality, Capitol was operating at a loss by 2004 and had "virtually no" legitimate investment activity by 2005, according to federal authorities.

Shapiro paid $13 million to contacts who could reel in fresh investors in order to keep the scam going, according to the SEC.

He is also listed as a donor on the University of Miami’s Web site, which describes him as "an ardent, devoted, intense supporter of the University of Miami Athletics."

"For the tremendous philanthropic support he provides, the University of Miami is proud to name the Student-Athlete Lounge after Nevin Shapiro," the site reads.

A spokesman for the athletics club was not immediately available for comment.

Kate Meyers, one of three lawyers representing Shapiro at the Lewis Tein firm in Coconut Grove, Fla., confirmed that Shapiro "surrendered this morning to authorities in New Jersey."

She said the two lead defense lawyers in the case are Michael Tein and Guy Lewis. 

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Dr. Roger Evans, a cardiologist in Wichita, Kan., is used to answering patients’ questions about their hearts. But lately, he said, he has spent half his time answering a succession of different questions — about the health care law.

Donald Moore, 75, one of those patients, expressed his uneasiness about the law recently: “The fact is that I don’t understand it, and no one else I talk to understands it. Every day, you read something different in the paper.”

Moore’s latest concern was a “rumor that the new health care procedures are going to be monitored and managed by the IRS.”

“That’s a turnoff right there,” he said. “How much is true, how much is fiction, out here no one knows.”

Most of the health care law, which President Barack Obama signed last month has yet to take effect, but for many doctors it is already having an impact.

“We’ve had to add an hour or two to the day because patients want to talk about it,” said Evans, who travels around the state and said questions often left him scratching his head. “I see 30 to 50 patients in a day, and it is the subject of conversation more than half the time.”

After months of public wrangling and brinksmanship in Washington, the nation’s doctors now find themselves having to answer questions about a 2,400-page law that many do not understand themselves, and which they may have opposed. “Not only is the public confused, but so are our members,” said Dr. Lori Heim, president of the American Academy of Family Physicians, which supported the bill. “There’s been a lot of misinformation out in the media. We’ve been trying to get to them simple answers — what does this mean for my practice, what does it mean for my patients, what does it mean for the future?”

Some doctors said their patients were pushing for surgery now, for fear that it will not be covered in the future or that they will end up on a waiting list. “It’s ludicrous to be coerced to perform surgery because of fear of noncoverage in the future,” said Dr. Eustaquio Abay II, a neurosurgeon in Wichita. “I refuse.”

Abay said he had tried to read the law, but gave up because it was all legal jargon to him. “They think we have all the answers, but we don’t,” he said of patients.
While many doctors say they are not besieged, the queries have been particularly robust in states where the plan was unpopular, Heim said.

Joseph Baker III, president of the Medicare Rights Center, a nonprofit organization that operates a hotline for patients with questions, characterized the volume of calls about the bill as moderate. But he said the level of confusion was high, comparable to that created when Medicare added prescription drug coverage in 2004.

Often, Baker said, callers have been getting their information from media commentators or doctors who opposed the legislation. “They’re being told by their providers, ‘Now I won’t be able to take Medicare patients,’” he said.

“People call us confused, panicked, anxious,” he said. “And in most instances, we say there are some benefits in the short term, like closing the doughnut hole,” as the gap in Medicare prescription drug coverage is known, “and that the things that might have a negative impact, like lower reimbursement to providers, will happen over a number of years. Usually that calms people down.”

The questions do not always reflect the actual provisions of the law. The major changes for this year, including coverage on their parents’ policies for adult children under age 26, rarely come up, said Dr. Melissa Gerdes, a family practitioner in Whitehouse, Texas, who said it was not unusual for her patients to discuss politics in the examining room. She said that only one patient had asked about the new law’s provisions on the doughnut hole, and that she could not recall any patient who had inquired about coverage for adult children.

“The big one I get is, ‘Are you going to be able to keep seeing me?’” Gerdes said. (She tells them she will.)

At Dr. Alieta Eck’s free clinic in Somerset, N.J., where all the doctors donate their time, Eck said many of her patients were excited about the new program. “People say, ‘I can’t wait for Obamacare,’” said Eck, who has been outspoken in her opposition to the program. “They’re already getting free care.”

Eck said that her office had not been overrun with questions about the bill, but that during visits at her paid practice, “most patients are fearing that everything’s going to cost them more.”

For many doctors, the big frustration comes when they do not know what to say to their patients.

“Quite honestly, I don’t know how to answer their concerns,” said Dr. Deborah Sutcliffe, a solo practitioner in Red Bluff, Calif. “Sometimes they’re more informed than I am, sometimes they’re not. I haven’t read the damn thing.”

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Severn Bancorp Inc. pared its loss in the first quarter, setting aside less money to cover potential losses in its loan portfolio.

The Annapolis-based parent of Severn Savings Bank (NASDAQ: SVBI) lost $528,000, or 10 cents a share, for the three months ended March 31. That was an improvement from the $1.3 million, or 18 cents a share, the company lost in the period a year earlier.

During first quarter 2010 Severn added $2.5 million to its loan-loss reserves, down from $4.5 million a year earlier and $5.5 million in fourth quarter 2009.

Severn’s capital levels exceed the requirements for federal banking regulators to consider the bank “well capitalized,” it said in a press release Thursday no faxing pay day loans.

“While we are not satisfied with the loss for the quarter, we are encouraged by the improvement in asset quality and the prospects for improved performance for the remainder of 2010,” Severn CEO Alan J. Hyatt said in a statement.

Severn Savings Bank has four branches in Annapolis, Edgewater and Glen Burnie.

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Travelers had a better overall experience on airlines in 2009, according to the annual Airline Quality Report.

Airlines improved in three of the four categories used to determine the rankings.

Dean Headley, associate professor of marketing at Wichita State University, will present the report and overall airline scores in Washington, D.C. Monday.

He will be joined by Paul Bowen, a former professor at WSU who is now the head of the aviation technology department at Purdue University.

The AQR uses information the airlines report to the U.S. Department of Transportation regarding on-time performance, involuntary denied boardings, mishandled bags and customer complaints to determine an overall score for the industry and individual airlines.

The industry scored better compared to 2008 in on-time performance, mishandled bags and customer complaints. It scored worse in 2009 on involuntary denied boardings.

Hawaiian Airlines had the best on-time performance, 92.1 percent, in 2009. Atlantic Southeast Airlines had the worst at 71.2 percent.

Fourteen airlines improved on-time performance in 2009, but only six of the 18 rated had on-time percentages higher than 80 percent.

American Eagle had the highest rate of involuntary denied boardings at 3.76 per 10,000 passengers.

Jet Blue was perfect in that category, scoring no involuntary denied boardings.

AirTran Airways had the best baggage handling rate at 1.67 mishandled bags per 1,000 passengers. Atlantic Southeast scored the worst at 7.87 mishandled bags per 1,000 passengers.

However, all 18 of the airlines rated improved their baggage handling scores in 2009.

Southwest Airlines had the rate of customer complaints at 0.21 percent per 100,000 passengers. Delta Air Lines had the highest rate at 1.96 customer complaints per 100,000 passengers.

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Having seen its $3.3 billion takeover bid spurned by the board of Macarthur Coal Ltd., Peabody Energy Corp. is asking Australia’s Takeovers Panel to intervene on its behalf.

Peabody is asking the panel to require Macarthur to postpone a Monday meeting where shareholders will consider issuing stock to complete the purchase of a third coal producer Gloucester Coal Ltd.

Macarthur agreed in December to buy Gloucester. But Peabody has said that its interest in Macarthur is contingent the Gloucester deal being scuttled.

Macarthur’s board rejected both Peabody offers, saying they don’t fully value the company, which is in the midst of an aggressive expansion. The board also recommended that shareholders vote to issue shares on Monday to complete the Gloucester transaction.

Australia’s Takeovers Panel is a peer-reviewed body that operates under the country’s securities law, according to its web site. It is charged with resolving disputes over takeover proposals. Its 54-members consist of executives, lawyers and academics appointed by the Governor General.

In its appeal to the panel, Peabody argues that Macarthur failed to provide shareholders with enough information to compare its bid with the Gloucester agreement.

The St. Louis-based company asked that Macarthur provide more disclosure, including updated analysis from an independent expert on the Gloucester proposal, and that Monday’s shareholder meeting be delayed until 10 business days after shareholders receive the additional information.

In a statement Thursday, Macarthur said shareholders “have all information required to make an informed decision.”

The company also criticized Peabody for taking out full-page ads in major Australian newspapers, calling them “self serving and potentially misleading.

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Mobile ad exchange Mobclix Inc. reports Sunday morning that there were 3,000 iPad apps available and only about 20 percent of them were free.

If being one of the first 600,000 to 700,000 estimated iPad owners after the first day of sales isn't status enough for the dedicated Apple Inc. fanatic, they can have all the apps available as of the time of the Mobclix report for $12,572.78.

The average price of an iPad app, Mobclix reports, is $4.99.

Games make up the biggest segment of apps available, with 942 and only 138 of those are free.

Click here to read more Business Journal stories about the iPad launch.

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Hawaiian Airlines is moving up the start date for its new, nonstop daily flight this summer between Oakland and Maui.

The service will begin on June 4 — almost two weeks earlier than originally scheduled, due to customer demand.

The Oakland-Maui flight, the first for the airline, will operate through Sept. 6.

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