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The Securities and Exchange Commission ("SEC")
recently won a judgment in excess of $108 million against Costa
Rica-based Provident Capital Indemnity, Ltd. ("PCI"),
which sold reinsurance bonds on life settlements, for its role in
what was alleged to be a "massive, ongoing fraud." In its
complaint, which was filed on January 19, 2011, the SEC alleged
that "PCI, its president Minor Vargas Calvo
('Vargas'), and its purported outside auditor, Jorge L.
Castillo ('Castillo') misrepresented PCI's ability to
satisfy its obligations under those bonds by making material
misrepresentations about: (i) whether PCI's financial
statements had been audited; (ii) the assets that backed PCI's
bonds; (iii) PCI's credit rating; and (iv) the availability of
reinsurance to cover claims on PCI's bonds." The complaint
alleged that since at least 2003, despite representations to the
contrary, "Castillo never conducted an audit of PCI and
instead issued clean audit reports at Vargas's bidding, thereby
supporting the illusion that PCI had materially larger assets and
greater financial wherewithal to support its obligations under the
life settlement bonds." The complaint further alleged that
"PCI and Vargas also have represented that PCI was backed by a
'bouquet' of reputable reinsurers that would backstop
PCI's obligations under its life settlement bonds when, in
fact, PCI had no reinsurance coverage."
The complaint alleged that "[f]rom at least 2004 through
March 2010, PCI issued approximately 197 bonds backstopping
numerous bonded offerings of investments in life insurance policies
with a face value of more than $640 million." The SEC sought
"temporary, preliminary and permanent injunctive relief,
disgorgement of all illicit profits and benefits Defendants have
received plus accrued prejudgment interest and a civil monetary
penalty." The SEC also sought "an asset freeze, an
accounting and other incidental relief, as well as the appointment
of a receiver to take possession and control of Defendants'
assets for the protection of Defendants' victims."
On April 18, 2012, in the criminal case of United States v.
Provident Capital Indemnity, Ltd., Minor Vargas Calvo and Jorge
Luis Castillo, 3:11- CR-14 (E.D. Va.) (the "Criminal
Case"), PCI pled guilty to one count of wire and mail fraud
conspiracy in violation of 18 U.S.C. § 1349. Thereafter, on
May 29, 2012, PCI signed its consent to the entry of a Final
Judgment in the SEC action which, inter alia, (i)
permanently restrains and enjoins PCI from violations of Section
10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
thereunder, and Section 17(a) of the Securities Act of 1933; (ii)
orders PCI to disgorge $43,582,699.22, "representing profits
gained from the conduct alleged in the complaint," plus
prejudgment interest in the amount of $51,102,055.41, for a total
of $94,684,754.63; and (iii) orders PCI to pay a civil penalty in
the amount of $13,780,000. The Final Judgment was entered on July
10, 2012 by the Honorable John A. Gibney, Jr. of the United States
District Court for the Eastern District of Virginia.
Castillo also pled guilty in the Criminal Case to one count of
conspiracy to commit mail and wire fraud and faces sentencing in
November 2012. Also in the Criminal Case, Vargas was found guilty
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. Vargas's sentencing is scheduled for
October 2012.
Where: United States District Court for the
Eastern District of Virginia
When: Final Judgment: July 10, 2012
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