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 today for their alleged role in a $670 million fraud scheme involving victims throughout the United States and abroad.
The charges were announced Wednesday by Neil H. MacBride, U.S. attorney for the Eastern District of Virginia and Assistant Attorney General Lanny A. Breuer of the Criminal Division.
The indictment charges Costa Rica-based Provident Capital Indemnity Ltd., 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 Tuesday at the John F. Kennedy International Airport, and Castillo was arrested earlier Wednesday in New Jersey.
Vargas has been associated with some of the major Costa Rican soccer teams, including Saprissa, Barrio México and Brujas.
“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 MacBride, referring to Provident Capital Indemnity Ltd.. “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 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, the government said. PCI’s bonds were 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, it added.
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, said the government.