A New Jersey accountant who acted as an outside auditor for a Costa Rican firm faces additional charges for his part in an alleged $670 million fraud. Jorge Castillo, 56, an inactive CPA, and Minor Vargas Calvo, 60, president of Costa Rican-based Provident Capital Indemnity, were hit with charges this month under a superseding indictment.

The indictments were handed down this month in the Eastern District Court in Richmond, Va. The accusation stem from the alleged sale of $670 million in reinsurance bonds to life settlement companies in the United States and other countries.

 

Each man and PCI, a company registered in the Commonwealth of Dominica, is charged  with one count of conspiracy to commit mail and wire fraud, three counts of mail fraud and three counts of wire fraud. Vargas is charged with three counts of money laundering. The superseding indictment seeks forfeiture of more than $40 million from the two men and their company. They also face parallel action by the SEC.

The two were arrested in January and have been incarcerated pending a scheduled Feb. 13, 2012 trial. If convicted, Vargas and Castillo face up to 20 years in prison on each fraud count and 10 years for each money laundering count.

The superseding indictment alleges that from 2004 through 2010, PCI sold approximately $670 million of bonds to life settlement investment companies PCI issue bonds to companies that sold life settlements or securities backed by life settlements to investors. The buyers then allegedly used the bonds to claim they had eliminated the risk that individuals insured by underlying life insurance policies would outlive their life expectancies.

PCI's clients sold investment offerings backed by the bonds to thousands of investors. Bond buyers were allegedly required to make up-front payments of six percent to 11 percent of the underlying settlement as "premium" payments to PCI before it would issue bonds.

The SEC action said the parties misrepresented issues such as whether PCI’s financial statements had been audited; the assets that backed PCI’s bonds; PCI’s credit rating; and the availability of reinsurance to cover claims on PCI’s bonds. The SEC said PCI fabricated millions of dollars in assets.

While PCI claimed its financial statements had been audited by Castillo, he conducted no audit, but instead issued clean audit reports "at Vargas's bidding." He issued reports from at least 2003 through 2009. Castillo lacked a basic understanding of life settlements and PCI's bonds, the SEC alleged. PCI also had no reinsurance to cover claims.

The SEC said that in February 2010 Castillo urged Vargas to destroy incriminating email messages and then tried to created backdated audit workpapers. The SEC also says that PCI has never registered to conduct insurance business in the United States.

In 2006, Vargas faced a cease-and-desist order from Texas for engaging in the unauthorized business of insurance in that state  and then in 2008 faced another cease-and-desist order there for selling unregistered bonds.

Last modified on Sunday, 02 June 2013
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