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Investment Fraud: The Bigger They Are, the More Damage They Do

by Barry Zalma, Esq., CFE

Minor Vargas Calvo, 60, who was president of Provident Capital Indemnity Ltd. was convicted by a federal jury in Virginia. Calvo, a former Costa Rican insurance executive was convicted 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.

Calvo and 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. 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.

Vargas testified 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. 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 more sophisticated the financial arrangement, the more diligent we must be at understanding and confirming all the facts. Insurance and investment companies are only as strong as their own balance sheet. Check to the U.S. Security and Exchange Commission website for the following:

• Check the credentials of anyone who wants to invest money for you. Ensure they are licensed to offer this type of investment and whether or not there has been disciplinary action against them.
• Check the financial position of the company behind the investment. Choose the most appropriate rating services from the Nationally Recognized Statistical Rating Organizations and see what it has to say about the company in which you are investing.
• Obtain professional assistance to evaluate investment risks. Obtain a second opinion from a qualified financial advisor on the investment you are considering.

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Barry Zalma, Esq., CFE, is a California attorney, insurance consultant and expert witness specializing in insurance issues including fraud. Mr. Zalma has also written a number of books and writes a free newsletter on insurance fraud. See his new program on insurance fraud, “Who Got Caught?” online at www.WRIN.tv.