U.S. Department of Justice

United States Attorney
Southern District of New York

October 21, 2010

Founder of the Cobalt Companies Sentenced to 85 Years in Prison for $23 Million Real Estate Fraud Scheme

NEW YORK – Mark Alan Shapiro, the founder of the Cobalt Companies was sentenced today to 85 years in prison on charges stemming from a fraud that raised more than $23 million from more than 250 investors in private placement real estate offering, announced Preet Bharara, U.S. Attorney for the Southern District of New York. Shapiro was sentenced in Manhattan federal court by U.S. District Judge Kimba M. Wood, who presided over the three-week jury trial at which Shapiro, along with co-defendants Irving Stitsky and William B. Foster, was found guilty.

“Mark Shapiro is a career con-man who stole millions of dollars from hundreds of investors by selling worthless interests in a bogus investment offering,” said U.S. Attorney Bharara. “This office will continue to work with our partners at the FBI to ensure that sham investment opportunities like Cobalt do not corrupt the marketplace.”

According to the superseding indictment previously filed in Manhattan federal court, the evidence at trial and statements made at the sentencing proceeding, beginning in late 2003, Shapiro, Stitsky and Foster founded a group of companies that operated under the name “Cobalt,” which purportedly engaged in the acquisition and development of multi-family real estate properties throughout the United States. Through the Cobalt entities, Shapiro, Stitsky and Foster fraudulently induced victims to invest by, among other things: (a) misrepresenting Cobalt’s operating history; (b) failing to inform prospective investors that Cobalt was owned and controlled by Shapiro and Stitsky, both convicted felons; and (c) misrepresenting and causing others to misrepresent Cobalt’s purported ownership interests in certain properties to prospective investors. In fact, Cobalt was a new company with little or no record of real estate investment success, was managed and controlled by Shapiro and Stitsky, and did not own several of the properties that it claimed to own.

In order to carry out their scheme, Shapiro, Stitsky and Foster established Cobalt’s corporate headquarters in Springfield, Mass., a satellite Cobalt office in Miami and a telemarketing center in Great Neck, N.Y. Shapiro controlled and managed all aspects of Cobalt’s Massachusetts and Florida offices, while Stitsky was in charge of the telemarketing center in New York. The defendants and their employees solicited funds from investors by making false and misleading oral and written representations about, among other things, the investment for which the investors’ funds were solicited, and the identities and relevant background information about the individuals controlling the Cobalt entities.

In addition, in furtherance of the scheme, Shapiro and Foster created and sent false financial statements and fake account statements that purported to show that Shapiro had liquid assets in excess of $3 million.

In addition to the prison term, Judge Wood sentenced Shapiro, 50, of Avon, Mass., to three years of supervised release and ordered him to pay $22,075,631 in restitution and to forfeit $23,152,235 in proceeds from his offenses.

Irving Stitsky, 56, of Milan, N.Y., was sentenced to 85 years in prison on July 6, 2010, and William B. Foster, 70, of East Hampton, Mass., was sentenced to three years in prison on Sept. 22, 2010.

U.S. Attorney Bharara praised the work of the FBI in this case.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which U.S. Attorney Bharara serves as a co-chair of the Securities and Commodities Fraud Working Group. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

Assistant U.S. Attorney Marc P. Berger of the office’s Security and Commodities Fraud Task Force is in charge of the prosecution.

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