U.S. judge gives Minor Vargas 60 years for insurance fraud

The president of a Costa Rican company that sold reinsurance bonds to life settlement companies was sentenced Tuesday in Richmond, Virginia, to 60 years in prison for carrying out a half-billion-dollar fraud scheme that affected more than 3,500 victims throughout the United States and abroad, said the U.S. Justice Department.

The man, Minor Vargas Calvo, 61, a citizen and resident of Costa Rica, is the majority owner of Provident Capital Indemnity Ltd., an insurance and reinsurance company registered in the Commonwealth of Dominica and doing business in Costa Rica, the government said. He was convicted April 30 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.

“Mr. Vargas masterminded a criminal reinsurance company that fraudulently claimed to guarantee almost half a billion dollars of life settlement investments sold to thousands of investors worldwide,” said U.S. Attorney Neil H. MacBride in a release. “Many of these investors lost their life savings because of the worthless guarantees PCI made. Mr. Vargas mistakenly believed that he could avoid punishment for the countless lives he destroyed because he operated his scheme from a non-extradition country. But, this prosecution demonstrates our resolve and ability to pursue justice on behalf of U.S. victims regardless of where the fraudsters may be hiding.”

“Mr. Vargas’s reinsurance company was a house of cards, built on a foundation of deception and lies,” said Assistant Attorney General Lanny A. Breuer in the same release. “He reaped millions in profit from his scheme to sell nearly $500 million worth of guarantee bonds to more than 3,500 victims, and then spent his spoils on his soccer team and himself. Today’s sentence reflects the determination of our agents and prosecutors to bring sham artists like Mr. Vargas to justice.”

Vargas was president of the Brujas first division soccer team. The U.S. Justice Department gave this summary:

According to court records and evidence at trial, Provident Capital Indemnity sold financial guarantee bonds to companies selling life settlements, or securities backed by life settlements, to investors. These bonds were marketed to Provident Capital Indemnity’s clients as a way to alleviate the risk of insured beneficiaries living beyond their life expectancy. Provident Capital Indemnity’s 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 Capital Indemnity’s purported independent auditor, Jorge Castillo, 57, of New Jersey, used lies and omissions to mislead clients and
investors regarding Provident Capital Indemnity’s 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 Capital Indemnity had entered into reinsurance contracts with major reinsurance companies, the government said. These false claims, which were supported by a letter from Castillo stating that he conducted an audit of the firm’s financial records, were used to assure Provident Capital Indemnity’s clients that the reinsurance companies were backstopping the majority of the risk that Provident Capital Indemnity had insured through its financial guarantee bonds, the government said. The fraudulent financial statements Provident Capital Indemnity distributed also showed significant assets and relatively small liabilities, it added.

From 2004 through 2010, Provident Capital Indemnity 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 Capital Indemnity’s clients, in turn, sold investment offerings backed by Provident Capital Indemnity’s bonds to thousands of investors around the world. Purchasers of Provident Capital Indemnity’s bonds were required to pay up-front payments of 6 to 11 percent of the underlying settlement as premium payments to Provident Capital Indemnity before the company would issue the bonds, the government recounted.

Evidence at trial showed that Vargas spent more than $23 million of his ill-gotten gains on his professional soccer teams in Costa Rica, his unrelated companies, his family and himself, said prosecutors. Due, in part, to these expenditures, when it came time to make good on Provident Capital Indemnity’s promises to pay bond holders, Vargas resorted to yet more lies to justify Provident Capital Indemnity’s inability to do so, they added.

Castillo, who was a Provident Capital Indemnity employee prior to becoming Provident Capital Indemnity’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 Nov. 30. In addition, Provident Capital Indemnity pleaded guilty on April 18 to conspiring to commit mail and wire fraud.

The firm was sentenced on Sept. 6 to one year of probation.

This investigation is being conducted by the U.S. Postal Inspection Service, the 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.

The U.S. Securities and Exchange Commission conducted a parallel investigation and in January 2011 filed a parallel civil enforcement action against Provident Capital Indemnity, Vargas and Castillo.

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