RICHMOND, VA – 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 yesterday for their alleged role in a $670
million fraud scheme involving victims throughout the United States and
abroad.
The 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.
An indictment unsealed in U.S. District Court for the
Eastern District of Virginia 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.
The indictment 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 earlier today in New
Jersey.
“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,” said U.S. Attorney MacBride. “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,” said Assistant Attorney General Breuer. “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.”
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.
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 today its filing 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, an unprecedented
partnership between criminal investigators and civil regulators to
investigate and prosecute complex financial fraud cases in the nation
and in Virginia. The task force is an investigative arm of the
President’s Financial Fraud Enforcement Task Force, an interagency
national task force.
President Obama established the 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.
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