Superseding Indictment Filed in $670 Million Fraud Scheme

WASHINGTON –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 charges were announced today by U.S. Attorney for the Eastern District of Virginia Neil H. MacBride and Assistant Attorney General Lanny A. Breuer of the Criminal Division.

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.

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 six to 11 percent of the underlying settlement as “premium” payments to PCI before the company would issue the bonds.

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 (SEC) conducted a parallel investigation and in January 2011 filed a parallel civil enforcement action against PCI, Vargas and Castillo. The department thanks the SEC for its assistance in this matter.

An indictment is a formal accusation of criminal conduct, not evidence.  A defendant is presumed innocent unless and until convicted.

The investigation has been coordinated by the Virginia Financial and Securities Fraud Task Force, an unprecedented partnership between criminal investigators and civil regulators to investigate and prosecute complex financial fraud cases in the nation and in Virginia specifically. The task force is an investigative arm of the President’s Financial Fraud Enforcement Task Force, an interagency national task force.

President Obama established the Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.