A federal jury in Virginia found Minor Vargas Calvo guilty Monday in a massive fraud scheme that has thousands of victims worldwide.
Vargas, 60, was president of a Costa Rican company, Provident Capital Indemnity Ltd., that sold reinsurance bonds to life settlement companies. Vargas is well known in Costa Rica because he also was president of the Brujas and Barrio México football clubs.
The U.S. Justice Department said that Vargas was convicted of one count of conspiracy to commit mail and wire fraud, three counts of mail fraud, three counts of wire fraud and three counts of money laundering. He faces a maximum penalty of 20 years in prison on each fraud count and up to 10 years in prison on each money-laundering count when he is sentenced on Oct. 23.
Costa Rica will not extradite its citizens for trial in other countries. So U.S. law enforcement officials waited until Vargas landed there before they made the arrest in 2011. The speed with which Vargas was detained, indicted, tried and convicted was surprising to many Costa Ricans because in their country such cases drag on for years and suspects frequently can buy their way out of a criminal case by making small reparations to victims.
The U.S. Justice Department gave this summary:
According to court records and evidence at trial, Provident sold financial guarantee bonds to companies selling life settlements, or securities backed by life settlements, to investors. These bonds were marketed to Provident’s clients as a way to alleviate the risk of insured beneficiaries living beyond their life expectancy. The clients, in turn, typically explained to their investors that the financial guarantee bonds ensured that the investors would receive their expected return on investment irrespective of whether the insured on the underlying life settlement lived beyond his or her life expectancy.
Evidence at trial showed that Vargas and Provident’s purported independent auditor, Jorge Castillo, 56, of New Jersey, used lies and omissions to mislead Provident’s clients and investors regarding its ability to pay claims when due on the financial guarantee bonds that the firm issued. Vargas caused Castillo to prepare audited financial statements that falsely claimed that Provident had entered into reinsurance contracts with major reinsurance companies. These false claims, which were supported by a letter from Castillo stating that he conducted an audit of Provident’s financial records, were used to assure Provident’s clients that the reinsurance companies were backstopping the majority of the risk that Provident had insured through its financial guarantee bonds. The fraudulent financial statements Provident distributed showed significant assets and relatively small liabilities.
From 2004 through 2010, Provident sold at least $485 million of bonds to life settlement investment companies located in various countries, including the United States, the Netherlands, Germany, Canada and elsewhere. Provident’s clients, in turn,
sold investment offerings backed by Provident’s bonds to thousands of investors around the world. Purchasers of Provident’s bonds were required to pay up-front payments of 6 to 11 percent of the underlying settlement as premium payments to Provident before the company would issue the bonds.
Evidence at trial showed that Vargas sent more than $23 million of his ill-gotten gains to fund his professional soccer team in Costa Rica, to his unrelated companies, to his family and to himself. Due, in part, to these expenditures, when it came time to make good on Provident’s promises to pay bond holders, Vargas resorted to yet more lies to justify Provident’s inability to do so.
Castillo, who was a Provident employee prior to becoming Provident’s outside auditor, pleaded guilty last Nov. 21 to conspiring to commit mail and wire fraud, which carries a maximum penalty of 20 years in prison. Castillo is scheduled to be sentenced on May 22. In addition, the corporation, Provident, pleaded guilty April 18 to conspiring to commit mail and wire fraud, which carries a maximum term of five years’ probation.
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 Aber Brumberg of the Eastern District of Virginia and Trial Attorney Albert B. Stieglitz Jr. of the Criminal Division’s Fraud Section.
The U.S. Securities and Exchange Commission conducted a parallel investigation and in January 2011 filed a parallel civil enforcement action against Provident, Vargas and Castillo.
Neil H. MacBride, U.S. attorney for the Eastern District of Virginia, and Lanny A. Breuer, assistant attorney general of the Criminal Division made the announcement following the jury’s verdict.
“Mr. Vargas lied to investors across the globe to sell almost half a billion dollars worth of guaranteed bonds, which turned out to be worthless,” said MacBride. “His fraud affected thousands of victims around the world, many of whom invested their life savings with life settlement companies because of the worthless guarantees PCI made. Mr. Vargas may have thought he was safe operating his scheme from overseas, but his conviction is yet another example to global fraudsters: You can run, but you can’t hide. This verdict demonstrates our ability to pursue justice on behalf of U.S. victims regardless of where the fraudsters may be hiding.”
“Mr. Vargas reaped millions in profit from a sprawling scheme to defraud investors seeking to hedge their risk in the life settlements market,” said Breuer. “He used his ill-gotten gains to fund a soccer team and to provide financial comfort for his family and for himself. Today, a Virginia jury told Mr. Vargas that he would be held accountable, hopefully bringing some measure of peace to the investors he defrauded.”