Fed: Company Sold $670,000 in Fraudulent Bonds

Reinsurance company, executives face multiple-count indictment
  RICHMOND, Va. – 1/20/2011 - The president and the auditor of a Costa Rican company selling reinsurance bonds to life settlement companies were arrested and charged, along with the company itself, in a seven-count indictment unsealed on Jan. 19 for their alleged role in a $670 million fraud scheme involving victims throughout the United States and abroad.
   The indictment charges Costa Rica-based 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. It also seeks forfeiture of more than $40 million from all three defendants. Vargas was arrested on Jan. 18, 2011, at the John F. Kennedy International Airport, and Castillo was arrested on Jan. 19 in New Jersey.
   Charges were announced by U.S. Attorney for the Eastern District of Virginia Neil H. MacBride and Assistant Attorney General Lanny A. Breuer of the Criminal Division.
   “PCI is 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,” MacBride said.
   According to the indictment, Vargas, a citizen and resident of Costa Rica, is the president and majority owner of PCI, an insurance and reinsurance company registered in the Commonwealth of Dominica and doing business in Costa Rica. Castillo, a resident of New Jersey, is the purported independent auditor for PCI. If convicted, Vargas and Castillo face up to 20 years in prison on each count.
   The defendants allegedly engaged in a scheme to defraud clients and investors by making misrepresentations 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.
   “This case is another example of how the members of the Virginia Financial and Securities Fraud Task Force are working to detect, deter and punish financial fraudsters who target investors throughout Virginia, the nation and the world.”
   “These defendants allegedly sold $670 million in bonds by making numerous false representations, which were disseminated to thousands of investors. They stand accused of defrauding victims at home and abroad.
  As these charges show, the Justice Department is committed to rooting out investment fraud wherever we find it,” Breuer said.
   The indictment alleges that from 2004 through 2010, PCI sold approximately $670 million of 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.
   This continuing investigation is being conducted by the U.S. Postal Inspection Service, Internal Revenue Service and FBI, with assistance from the Virginia State Corporation Commission, the Texas State Securities Board, and the New Jersey Bureau of Securities. This case is being prosecuted by Assistant U.S. Attorneys Michael S. Dry and Jessica A. Brumberg of the Eastern District of Virginia and Trial Attorney Albert B. Stieglitz Jr. of the Criminal Division’s Fraud Section.
   In a parallel investigation, the U.S. Securities and Exchange Commission announced its filing on Jan. 19 of a parallel emergency enforcement action against PCI, Vargas and Castillo.
   An indictment is a formal accusation of criminal conduct, not evidence. A defendant is presumed innocent unless and until convicted through due process of law.
   The investigation has been coordinated by the Virginia Financial and Securities Fraud Task Force.
   Source: http://www.stopfraud.gov

Photo by Steve Rensberry (c) 2014