Local Firm Charged with Wire Fraud

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The Costa Rica-based insurance firm, Provident Capital Indemnity Ltd., as well as its president and an outside auditor have been charged with mail and wire fraud, accused of misleading investors.

The U.S. Securities and Exchange Commission (SEC) has filed a similar civil suit, reports Reuters news agency. Provident president Minor Vargas was arrested at New York's J.F.K. International Airport Tuesday and the auditor, Jorge Luis Castro was detained in New Jersey on Wednesday.

Both men were indicted Jan. 5, accused of misleading clients about the firm's ability to honor its bond obligations on life insurance settlements. The bonds were marketed as a way of alleviating risk for investors in life insurance policies when the insured lives beyond expectations.

U.S. authorities charged that Provident Capital allegedly lied to its clients regarding its credit rating, assets backing the bonds, availability of reinsurance to cover claims on the bonds and whether its financial statements had been audited. The bonds were supposed to be a hedge where the life policy holder sells the policy to investors for a percentage of the policy's value.

When the policy owner dies, the investor can reap the full benefit but the longer the policy owner lives, the less the investor makes. The indictment charges that Provident Capital has been selling the so-called "life expectancy bonds" since 2004.

Over several years, U.S. officials said, the firm sold more than 200 of the bonds. Authorities also charge that Provident promised to lower the risk on life settlements by paying the death benefit if the insured outlived his life expectancy.