The Securities and Exchange Commission recently charged Provident Capital Indemnity Ltd., its president, and its auditor with conducting a massive life settlement fraud, according to Darla Mercado’s InvestmentNews article, “Backer of life settlement insurers hit with fraud charges.” The SEC’s suit also names Provident Capital’s president, Minor Vargas Calvo, and supposed outside auditor, Jorge L. Castillo, as defendants.
Provident Capital is an offshore company located in Costa Rica that provides financial guarantee bonds on life settlements. The bond issuer is obligated to pay the death benefit if the insured lives beyond the estimated life expectancy. However, Provident Capital misrepresented its ability to meet its obligations under its bonds, as well as the assets that backed them, its credit rating, the availability of reinsurance to cover claims on its bonds, and whether its financial statements had been audited.
“PCI’s bonds helped market investments in insurance policies, but neither PCI’s word nor its bond could be trusted,” said Stephen L. Cohen, an Associate Director in the SEC’s Division of Enforcement. “Accountants who let companies use their audit reports as a rubber stamp can expect to be held accountable.”
From at least 2004 to March 2010, Provident Capital issued approximately 197 bonds in connection with a multitude of bonded offerings of life settlement investments with a face value of more than $670 million.
According to the SEC, Provident Capital, Vargas and Castillo falsely that Castillo had audited its financial statements in accordance with generally accepted accounting standards, when Castillo never conducted an audit, but rather misled issuers and investors that Provident Capital had materially larger assets and greater financial wherewithal to support its obligations under the life settlement bonds.
The SEC is seeking an asset freeze on the defendants, disgorgement of profits, as well as interest, penalties, and injunctive relief. A parallel criminal action against the defendants is also proceeding, and Vargas and Castillo have been arrested.
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