Published April 30, 2012
RICHMOND, Va. – A federal jury in Virginia convicted a former Costa Rican insurance executive on Monday of all counts in a $485 million fraud scheme in which he was accused of lying to clients and investors about the financial stability of his company.
Minor Vargas Calvo, 60, was president of Provident Capital Indemnity Ltd. 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 originally claimed Provident sold $670 million in bonds based on fraudulent financial statements, but an accounting done by an Internal Revenue Service investigator verified only $485 million. According to prosecutors, Vargas not only misrepresented the company’s assets but also lied when he told clients, investors and regulators that Provident was protected by reinsurance agreements with major companies.
After a five-day trial, the jury deliberated about three hours before finding Vargas guilty of one count of conspiracy and three counts each of mail fraud, wire fraud and money laundering. Vargas, who stood stoically as the verdict was read, is scheduled for sentencing Oct. 23 and could face a maximum of 170 years in prison.
“We’re disappointed, obviously,” defense attorney Jeffrey Everhart said outside the courtroom. “It was a pretty complex case, and there was a lot of evidence that obviously wasn’t good for us.”
He said he was unsure about an appeal.
U.S. Attorney Neil MacBride said in a written statement that the fraud affected thousands of victims worldwide, including some who lost their life savings by investing in life settlements based on Provident’s worthless guarantees.
“Mr. Vargas may have thought he was safe operating his scheme from overseas, but his conviction is yet another example to global fraudsters: You can run but you can’t hide,” MacBride said.
In closing arguments, U.S. Justice Department lawyer Albert Stieglitz Jr. said witness testimony and a mountain of emails and other documents proved that Vargas deliberately and repeatedly lied to clients and investors about Provident’s financial stability and credit rating. He also said Vargas, who has a doctorate in economics, also improperly spent Provident funds on himself, his family and a professional soccer team that he owned.
“The bottom line is you can’t lie to get people’s money,” Stieglitz said. “That’s what Dr. Vargas did over and over and over again.”
Everhart acknowledged in his closing that Vargas made mistakes but argued that prosecutors failed to prove their case beyond a reasonable doubt. Everhart said an accountant first falsified the financial statements before Vargas took over the company.
“Mr. Vargas inherited a mess and did the best he could to try to make it right,” Everhart said.
The accountant, Jorge Luis Castillo of Hackettstown, N.J., testified last week against Vargas. Castillo, who testified that the Provident financial statements were fabricated, pleaded guilty last year to conspiring to commit mail and wire fraud and faces up to 20 years in prison at his sentencing, set for Sept. 5.
The government’s evidence against Vargas included several email exchanges between Castillo and Vargas. In one such exchange, Castillo asked whether Provident had any real numbers he could use in the financial statements and Vargas replied, “We do not have any accounting.”
Everhart conceded that some of the emails make Vargas look bad, but he added: “I suggest there are times Mr. Castillo is being a little more incriminating than the responses from Mr. Vargas would indicate.”
Vargas testified last week that he did not deal with the financial statements in detail and only used them as “a marketing tool.”
The prosecutor said it defied logic that a highly educated company president would simply be in the dark about his firm’s finances.
“This is not a man trying to run a legitimate business,” he said. “This is a man running a scam.”
The government also filed charges against Provident, which has agreed to plead guilty to a single count of mail and wire fraud conspiracy. The company faces a fine of $500,000 or double the amount it collected from any victim of the offense, plus full restitution. Sentencing is set for Sept. 5.
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.
One of Provident’s major customers was Houston-based life settlement company A&O. Seven people affiliated with A&O, including its three principals, have been convicted in jury trials or pleaded guilty to a $100 million fraud that claimed 800 victims in three dozen states and Canada.
The charges were filed in Virginia because that’s where some of the victims and transactions were located.