Firm Pleads Guilty in Va. Court to $670M Insurance Fraud Scheme

April 23, 2012

A Costa Rican company has agreed to plead guilty to a $670 million global insurance fraud scheme.

Provident Capital Indemnity Ltd. entered a plea agreement last Friday in U.S. District Court in Richmond, Virginia, where its majority owner and president is scheduled for a jury trial starting Monday. Minor Vargas Calvo is charged with conspiracy, wire fraud, mail fraud and money laundering.

According to court papers, Provident agreed to plead guilty to a single count of mail and wire fraud conspiracy. A half-dozen mail fraud and wire fraud counts will be dropped.

Provident faces a maximum fine of $500,000 or double the amount it collected from any victim of the offense, plus full restitution. Sentencing was set for Sept. 5.

Provident sold bonds guaranteeing funding for life settlement companies, which buy life insurance policies from insured people at less than face value and collect the benefits when those people die. The government claimed Provident misled investors about its financial stability, its credit rating and whether its financial statements had been audited.

The Securities and Exchange Commission also filed a civil complaint against Provident last year, and a judge froze the company’s assets and enjoined it from doing business. The plea agreement was signed by the court-appointed receiver in the SEC’s enforcement action, as well as the federal prosecutor and Provident’s attorney.

Jorge Luis Castillo of Hackettstown, N.J., a certified public accountant who conducted a sham audit for Provident, also will be sentenced Sept. 5. Castillo, described by the government as a “gatekeeper” for Provident, faces up to 20 years in prison after pleading guilty last year to conspiring to commit mail and wire fraud. As part of a plea agreement, Castillo agreed to cooperate in the prosecution of Calvo.

The life settlement market began in the late 1970s, when AIDS patients sought to sell their life insurance policies for cash to pay for treatment, experimental drugs, and for routine bills when they lost their jobs.

In recent years, the market has focused mostly on older people without life-threatening diseases, but who no longer need or want life insurance or who need to cash in the policies for a fraction of the death benefit.

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