Life Insurance Firm Slammed for False Representation

Jack Humphrey, Regulatory journalist
January 20, 2011 /

An offshore life insurance bond company based in Costa Rica allegedly made several misrepresentations about its ability to meet duties under its bonds, falsifying the assets backing their bonds, credit rating, availability of reinsurance to cover claims on bonds, and audit reports.

The Securities and Exchange Commission (SEC) charged January 19 life settlement firm Provident Capital Indemnity Ltd. (PCI) with falsifying its life settlement bonds, including its president and purported outside auditor. In its filed complaint before the U.S. District Court for the Eastern District of Virginia, SEC seeks to freeze the assets of defendants Minor Vargas Calvo, PCI president, and Jorge Castillo, the purported outside auditor, and relief defendant Desarrollos Comerciales Ronim, the managing general agent.

The SEC also orders the defendants to immediately repatriate any funds held at any bank or other financial institution outside of US court jurisdiction, and that they direct the deposit of such funds in identified accounts in the United State.

In addition, the U.S. Attorney’s Office for the Eastern District of Virginia and the Fraud Section of the Department of Justice’s Criminal Division have filed related criminal actions against the life insurance firm and the individuals involved, seeking to arrest them.

At issue was the fixed maturity date for the investments offered by the bonds of the life insurance company, obligating PCI to pay the investors the face value of more than $670 million as its policy requires if the insured lived beyond life expectancy. The life insurance firm promises its investors to pay the death benefits of the insured should they live past their life expectancy. The SEC argued that without a bond a life insurance investment is illiquid and open-ended, the payout date of the investment being dependent on the date of death of the insured.

The SEC alleged that the life insurance firm issued nearly 197 bonds from 2004 to March 2010 that backstopped several offerings of life insurance investments.

The complaint added that the outside auditor never conducted an audit of PCI’s financial statements, contrary to representations from the life insurance firm. This disregard of duty resulted in a fictitious belief among investors that PCI had large “Long Term Assets” that compromised 80 percent of PCI’s assets based on the reports covering the period from 2003 to date.

The SEC further said the life insurance company lied when it claimed that it had reinsurers to backstop its obligations under its bonds.

 

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