MINOR VARGAS CALVO FOUND GUILTY IN INSURANCE FRAUD TRIAL

Minor Vargas Calvo, majority owner and president of Costa Rica-based Provident Capital Indemnity (PCI), has been found guilty of defrauding more than 2,000 investors of $485m. 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. He faces a maximum penalty of 20 years on each fraud count and 10 years on each money-laundering count. PCI sold financial guarantee bonds to life settlement companies. These bonds were meant to protect the life settlement companies against undue longevity on the part of the insured beneficiaries of policies bought by the life settlement company. Those companies typically explained to investors in portfolios of life policies that they would receive their expected rate of return even if the insured beneficiaries lived longer than expected, because PCI was reinsuring the longevity risk. The trial evidence showed that Vargas and PCI's purported independent auditor Jorge Castillo misled PCI's clients and those clients' investors with fraudulent financial statements regarding the health of PCI. Between 2004 and 2010 PCI sold at least $485m in bonds to life settlement companies registered throughout the world. In January 2011 the US Securities & Exchange Commission filed a parallel civil enforcement against messrs Vargas and Castillo. The trial heard that, far from being a solidly run company with valid bonds, Vargas sent more than $23m of the initial "premium" payments on his Costa Rican football team, to other, unrelated companies that he controlled, to his family and to himself. Mr Castillo pleaded guilty to fraud last November and has since co-operated with the investigation.