A Costa Rican company, its president, and its auditor were charged in a superseding indictment filed yesterday in U.S. District Court in Richmond, Va., for their alleged roles in a $670 million fraud scheme involving victims throughout the United States and abroad. The company allegedly sold reinsurance bonds to life settlement companies.
The superseding indictment charges Costa Rican-based Provident Capital Indemnity Ltd. (PCI), Minor Vargas Calvo, 60, and Jorge Castillo, 56, each with one count of conspiracy to commit mail and wire fraud, three counts of mail fraud, and three counts of wire fraud.
In addition, Vargas is charged with three counts of money laundering. The superseding indictment also seeks forfeiture of more than $40 million from all three defendants. Vargas was arrested on Jan. 19, 2011, at the John F. Kennedy International Airport in New York, and Castillo was arrested on Jan. 20, 2011, in New Jersey. Vargas and Castillo have been incarcerated pending a scheduled Feb. 13, 2012, trial.
According to the superseding 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 fraud count and up to 10 years in prison on each money laundering count.
Life settlements
The defendants allegedly engaged in a scheme to defraud clients and investors by making misrepresentations and omissions designed to mislead PCI’s clients and potential clients regarding its ability to pay claims when due on the financial guarantee bonds that PCI issued. PCI issued these bonds to companies that sold life settlements or securities backed by life settlements to investors.
These companies then allegedly used PCI’s bonds to claim that they had eliminated 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 superseding 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.
