Costa Rican Company and Executives Charged with Alleged $670 Million Fraud Scheme

January 24, 2011

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.

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 Vargas, Castillo and PCI. Vargas was arrested on January 18, 2011, at the John F. Kennedy International Airport, and Castillo was arrested January 19, 2011, in New Jersey.

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.

Vargas and Castillo 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.

Although a corporation is not a physical person, in the legal sense a corporation can be held criminally and civilly accountable for the actions of its employees, given the employees were acting in the scope of their employment and for the benefit of the corporation. This is possible through the legal doctrine of “respondeat superior.”

In a parallel investigation, the U.S. Securities and Exchange Commission announced its filing of a parallel emergency enforcement action against PCI, Vargas, and Castillo. The press release issued by the SEC is available here.

In cases dealing with financial securities and business transactions, the U.S. federal government has the power to charge individuals and corporations with criminal and civil liability. The Department of Justice handles the criminal aspect of such charges, and other governmental agencies such as the SEC or the FTC will impose civil liability. Criminal charges result in possible imprisonment, fines and forfeiture, whereas civil charges typically result in financial damages.

Douglas McNabb and other members of the firm practice and write extensively on matters involving Federal Criminal Defense, Interpol Litigation, International Extradition and OFAC Litigation.

The author of this blog is Douglas McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.

Bookmark and Share