Financial Fraud Alert: Recent Judgement Entered Against Provident Capital Indemnity Ltd.

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.”