The president and the auditor of a Costa Rican company selling reinsurance bonds to life settlement companies have been arrested and charged for their role in a $670 million fraud scheme.
The indictment unsealed on Jan. 19 in U.S. District Court for the Eastern District of Virginia charges Costa Rica-based company Provident Capital Indemnity Ltd. (PCI), Minor Vargas Calvo, 59, and Jorge Castillo, 55, each with one count of conspiracy to commit mail and wire fraud, three counts of mail fraud and three counts of wire fraud.
The indictment also seeks to forfeit more than $40 million from all three defendants.
Vargas was arrested on Jan. 18, 2011 at the John F. Kennedy International Airport. Castillo was arrested the following day. Vargas, a citizen and resident of Costa Rica, is the president and majority owner of PCI, and Castillo, a resident of New Jersey, is the purported independent auditor for PCI. If convicted, both faces up to 20 years in prison on each count.
According to U.S. Attorney for the Eastern District of Virginia Neil H. MacBride, PCI has been accused of lying to investors across the globe to sell more than half a billion dollars worth of 'guaranteed' bonds which turned out to be worthless.
These defendants allegedly sold $670 million in bonds by making numerous false representations, which were disseminated to thousands of investors, said Assistant Attorney General Lanny A. Breuer of the Criminal Division said.
The prosecutors said the defendants defrauded clients and investors by making false representations about PCI's reinsurers, PCI's financial statements and PCI's Dun and Bradstreet rating, in connection with PCI's marketing and sale of financial guarantee bonds to companies that sold life settlements or securities backed by life settlements to investors.
PCI's bonds were allegedly marketed as a way to eliminate one of the primary risks of investing in life settlements, namely the possibility that the individual insured by the underlying life insurance policy will live beyond his or her life expectancy.
Between 2004 and 2010, PCI allegedly sold $670 million of bogus bonds to life settlement investment companies located in various countries, including the United States, the Netherlands, Germany, Canada and elsewhere.
PCI's clients, in turn, sold investment offerings backed by PCI's bonds to thousands of investors around the world. Purchasers of PCI's bonds were allegedly required to pay up-front payments of 6 to 11 percent of the underlying settlement as 'premium' payments to PCI before the company would issue the bonds, The Department of Justice said in a statement.
In a parallel investigation, the U.S. Securities and Exchange Commission (SEC) said it has filed a parallel emergency enforcement action against PCI, Vargas and Castillo.