SEC v. PROVIDENT CAPITAL INDEMNITY, LTD.; MINOR VARGAS CALVO; JORGE L. CASTILLO; and DESARROLLOS COMERCIALES RONIM S.A, No. 3:10-CR-00248, Eastern District of Virginia (May 13, 2011) — Complaint

UNITED STATES DISTRICT COURT 
EASTERN DISTRICT OF VIRGINIA 
Richmond Division 
 
 
 
SECURITIES AND EXCHANGE COMMISSION, 
 
Plaintiff, 
- against -  
 
PROVIDENT CAPITAL INDEMNITY, LTD., 
MINOR VARGAS CALVO, and 
JORGE L. CASTILLO,      
       
Defendants,  
and 
DESARROLLOS COMERCIALES RONIM S.A ,  
 
Relief Defendant. 
 
CIVIL ACTION NO. 
___________________ 
 
COMPLAINT  
Plaintiff Securities and Exchange Commission (the “Commission”) alleges as follows: 
SUMMARY
  
1. The Commission seeks emergency relief to halt a massive, ongoing fraud by 
Provident Capital Indemnity, Ltd. (“PCI”), an offshore company located in Costa Rica that 
provides financial guarantee bonds on life settlements and claims to protect investors’ interests in 
life insurance policies by promising to pay the death benefit if the insured lives beyond his or her 
estimated life expectancy.    
2. From the mid-2000s to the present, PCI’s bonds were a material component of 
numerous third-party life settlement offerings in the United States and abroad.  Without a bond, a 
life settlement investment is illiquid and open-ended because the investment’s pay-out date and 
return are dependent upon the date of the insured’s death.  PCI’s bonds offered a fixed maturity date 
1 
 

for the investments because PCI’s bond obligated PCI to pay investors (directly or indirectly 
through the life settlement issuer) the face value of the underlying insurance policy by a date certain 
if the insured lived past his life expectancy date.  PCI’s bonds were a material – indeed, 
indispensible – component of the life settlement investment that PCI bonded.   
3. 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.   
4. Specifically, since at least 2003, PCI, Vargas and Castillo represented to life 
settlement issuers, and in turn, the investing public, that Castillo had audited PCI’s financial 
statements in accordance with generally accepted accounting standards.  Contrary to their 
representations, however, 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.  
PCI’s “audited” financial statements reflect what, upon information and belief, appears to be a 
fictitious “Long Term Asset” that has comprised some 70% to 80% of PCI’s total reported assets 
from at least 2003 to the present.  PCI’s “audited” financial statements were provided to Dun & 
Bradstreet (“D&B”), which issued PCI a favorable rating of “5-A/S,” based exclusively on PCI’s 
reported net worth.  PCI then misleadingly represented in its marketing materials that D&B’s 
rating is a reflection of “successful customer satisfaction” and “the ability to maintain one of the 
insurance industry’s lowest loss ratios.”  PCI and Vargas also have represented that PCI was 
2 
 

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.   
5. PCI, Vargas and Castillo knew, or recklessly disregarded, that these 
representations about PCI’s bonds and financial strength were false and misleading.  Further, the 
Defendants’ actions were in connection with the purchase and sale of securities.  It was 
foreseeable, and Defendants knew, that life settlement issuers packaged PCI’s bond with life 
settlement investments, that PCI’s bond was an indispensible component of the investment, and 
that issuers of bonded life settlement offerings repeated Defendants’ misrepresentations to end 
investors.   
6. In February 2010, fearful that regulators would learn of his misconduct, Castillo 
urged Vargas to destroy his emails and other documents, telling Vargas in an email that their “best 
option is to prepare for the worst.”  Castillo then attempted to create backdated audit work papers 
that would evidence his purported audits of PCI’s financial statements, in one instance asking 
Vargas, “DO YOU HAVE ANY REAL ACCOUNTING?”  After working with Vargas to review 
some of PCI’s business records – years after his purported audits – Castillo described the exercise as 
the “first time we’ve had the opportunity to analyze everything . . . better late than never.”  
7. From at least 2004 through March 2010, PCI issued approximately 197 bonds 
backstopping numerous bonded offerings of investments in life insurance policies with a face 
value of more than $670 million.  These offerings were sold in the United States, the 
Netherlands, Belgium, and in other countries, and include life settlement offerings issued by 
A&O Resources Management, Ltd. (“A&O”) and American Settlement Associates LLC 
(“ASA”).  PCI continues to make false and misleading statements and issue bonds on new life 
3 
 

settlement offerings in Europe and, upon information and belief, Vargas is contemplating 
changing PCI’s name to better enable the fraud to continue undetected.   
8. By engaging in the conduct described in this Complaint, defendants PCI, Vargas 
and Castillo, directly or indirectly, singly or in concert, have engaged, and unless enjoined and 
restrained, will again engage in transactions acts, practices, and courses of business that 
constitute violations of Section 17(a) of the Securities Act of 1933 (“Securities Act”) [15 U.S.C. 
§ 77q(a)], and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) [15 
U.S.C. § 78j(b)], and Exchange Act Rule 10b-5 [17 C.F.R. § 240.10b-5].  Alternatively, Castillo 
aided and abetted PCI’s and Vargas’s violations of Securities Act Section 17(a) and Exchange 
Act Section 10(b) and Exchange Act Rule 10b-5.  
9. Relief Defendant Desarrollos Comerciales Ronim S.A. received some or all of the 
proceeds of defendants’ unlawful scheme under circumstances in which it is not just, equitable or 
conscionable for Desarrollos Comerciales Ronim, S.A. to be so enriched.   
10. The Commission, in the interest of protecting the public from any further 
unscrupulous and illegal activity, brings this action against the Defendants, seeking temporary, 
preliminary and permanent injunctive relief, disgorgement of all illicit profits and benefits 
Defendants have received plus accrued prejudgment interest and a civil monetary penalty.  The 
Commission also seeks an asset freeze, an accounting and other incidental relief, as well as the 
appointment of a receiver to take possession and control of Defendants’ assets for the protection 
of Defendants’ victims.   
4 
 

JURISDICTION AND VENUE 
11. The life settlement offerings that were bonded by PCI are “securities” under 
Section 2(1) of the Securities Act (“Securities Act”) [15 U.S.C. § 77b] and Section 3(a)(10) of 
the Exchange Act (“Exchange Act”) [15 U.S.C. § 78c].   
12. Plaintiff Commission brings this action under the authority conferred upon it by 
Securities Act Sections 20(b) through 20(e) [15 U.S.C. § 77t(b)-77t(e)] and Exchange Act 
Sections 21(d) through 21(e) [15 U.S.C. §§ 78u(d)-78u(e)]. 
13. This Court has jurisdiction over this action pursuant to Securities Act Section 
22(a) [15 U.S.C. § 77v(a)] and Exchange Act Section 27 [15 U.S.C. § 78aa].  Venue is proper 
because certain of the acts, practices, transactions and courses of business alleged herein 
occurred within the Eastern District of Virginia.   
DEFENDANTS
 
14. Provident Capital Indemnity Ltd. (“PCI” or the “Company”) is organized 
under the laws of the Commonwealth of Dominica and is headquartered in San Rafael, Heredia, 
Costa Rica, where it is managed under contract by Desarrollos Comerciales Ronim S.A.  PCI 
purports to be an insurance and reinsurance company.  It states on its website – 
www.providentinsurances.com – that PCI has been underwriting a profitable book of business 
for over nineteen years, in over forty-eight countries, and in seventeen currencies.  PCI has never 
been registered as an insurer and has never been authorized to conduct the business of insurance 
in the United States.    PCI’s stock has never been registered with the Commission.    In 
December 2010, PCI announced that it was approved as a regulated reinsurance company in 
Ecuador and Indonesia. 
5 
 

15. Minor Vargas Calvo (“Vargas”), 51, is a citizen and resident of Costa Rica.  He 
is the President of PCI and of Desarrollos Comerciales Ronim S.A.   Vargas has been active in 
PCI’s business since 2002.  By at least 2004, he became PCI’s President, and he has been its 
majority stockholder since no later than 2005.  Since 2005, PCI has been the subject of at least 
two state regulatory actions, including the following:  In 2006, the Texas Department of 
Insurance entered a cease-and-desist order against PCI for engaging in the unauthorized business 
of insurance in Texas in connection with its issuance of bonds on bonded life settlement 
contracts; in 2008, the Texas State Securities Board, entered a cease-and-desist order against PCI 
for, among other things, failure to register its bonds with the Securities Commissioner of the 
State of Texas and offering securities for sale in Texas without being registered as a securities 
dealer or agent and for engaging in fraud.  Vargas also is president of Grupo Icono, a Costa 
Rican company that markets a number of services and lines of business to soccer teams.   
16. Jorge L. Castillo (“Castillo”) is an accountant who resides in New Jersey.  At all 
times relevant to this Complaint, Castillo held himself out to be a Certified Public Accountant 
licensed in Costa Rica and, through 2009, in New Jersey.  The State of New Jersey Board of 
Accountancy currently lists Castillo’s license as inactive.  Castillo publicly presented himself to 
be PCI’s independent, outside auditor commencing no later than PCI’s fiscal year ended 
September 30, 2003 (“Fiscal Year 2003”).  Since then, Castillo has sought and received cash 
loans from Vargas to help cover medical and other expenses of his family (including his in-laws) 
in the United States and Costa Rica and has received other compensation from Vargas outside of 
the auditing relationship. 
6 
 

OTHER RELEVANT PERSONS/ENTITIES 
17. A&O Resources Management, Ltd. was a Chicago-based life settlement 
company founded in November 2004 by Christian M. Allmendinger (“Allmendinger”) and Brent 
P. Oncale (“Oncale”).  A&O Resources Management, Ltd, together with its affiliates A&O 
Capital Management, LLC; Houston Tanglewood Partners, LLC; A&O Bonded Life Assets, 
LLC; A&O Bonded Life Assets Management, LLC; A&O Life Fund, LLC; A&O Life Fund 
Management, LLC; A&O Life Funds, LP; Life Fund 5.1, LLC; Life Fund 5.1 Management, 
LLC; Life Fund 5.2, LLC; Life Fund 5.2 Management, LLC; AB Revocable Living Fund, LLC; 
AB Revocable Living Fund Management, LLC; A&O Bonded Life Settlements , LLC 
(collectively “A&O”) sold life settlement investments to more than 800 investors in more than 
37 states, including Virginia, and Canada.  PCI bonded a majority of the life insurance policies 
underlying the life settlement investments sold by A&O.  On September 7, 2010, the United 
States Attorney’s Office for the Eastern District of Virginia unsealed indictments against 
Allmendinger and others for conspiracy to commit mail fraud, money laundering, and securities 
fraud based on false statements and misuse of investor funds in connection with the A&O 
offerings.  United States v. Allmendinger, et al.
, 3:10-CR-00248-REP (E.D.Va.).  Trial is set for 
spring 2011.   
18. American Settlement Associates LLC (“ASA”) was a Houston-based life 
settlement company formed by Charles “Chip” Jordan (“Jordan”) and Kelly T. Gipson 
(“Gipson”).  Commencing in 2007, ASA sold life settlement investments to 56 investors in ten 
states, including Virginia.  PCI bonded the life insurance policy underlying ASA’s life settlement 
investments.   
7 
 

19. Dun & Bradstreet (“D&B”) is a business information company based in New 
Jersey, with offices globally.   The Latin America division of D&B, which is located in Sunrise, 
Florida, provides business information reports and in some cases ratings on companies located in 
34 different Latin American and Caribbean countries.  D&B generates a two-part rating, the first 
of which is based on a company’s net worth, and the second of which is based upon a composite 
credit appraisal.  PCI has paid to have D&B generate and update business information reports 
and ratings on PCI periodically since the late 1990s.   
STATEMENT OF FACTS
 
 
A. Life Settlement Offerings Bonded by PCI
 
20. Beginning in at least the mid-2000s, PCI began selling First Written Demand 
Financial Guarantee Bonds on life insurance policies underlying numerous so-called “life 
settlements.”   
1. Life Settlements Generally 
21. A life settlement is an investment transaction in which the owner of a life 
insurance policy sells his policy to a third party for an amount that exceeds the policy’s cash 
surrender value but is less than the face value or expected death benefit of the policy.  The “face 
value” or “death benefit” of a life insurance policy is the dollar amount paid by the insurance 
company when the insured dies.  Rather than allow his policy to lapse or surrender it to the 
insurance company for a lower price, the policy owner, who typically has a short life 
expectation, sells his policy in the secondary market to maximize his asset.   
22. A life settlement is typically accomplished through the efforts of a number of 
intermediaries between the policyholder and the policy’s end investor, each of them dealing with 
a specific aspect of the settlement of the underlying life insurance policy.  
8 
 

23. Typically, an insured sells his policy to a life settlement company or life 
settlement provider.  The policy is usually accompanied by, or the life settlement provider 
obtains, a life expectancy assessment which evaluates the insured’s risk of mortality and 
provides an estimated “life expectancy” for the insured -- i.e., an estimated timeframe in which 
the insured is expected to die which, in turn, is the date on which the insurance company is 
expected to pay a death benefit on the insured’s policy. 
24. Life settlement providers often re-sell the life insurance policy to life settlement 
issuers, companies that specialize in the secondary market of life settlement.  Life settlement 
issuers, in turn, market the policies to end investors, oftentimes after first obtaining a financial 
guarantee bond on the underlying policy.  Common ways in which life settlement issuers market 
bonded policies to investors include:  (a) selling fractionalized interests in the life insurance 
policy, or (b) packaging several policies together and selling an interest in the pool of policies.   
25. The end investor in a bonded life settlement purchases the right to receive all or a 
portion of the policy’s death benefit when the insured dies; or, if the insured lives beyond his life 
expectancy date (plus any additional period built into the bond), the investor purchases the right 
to receive directly or indirectly from the bonding company all or a portion of the face value of 
the policy when the trigger date has passed and a claim has been made on the financial guarantee 
bond.  If the bonding company is required to pay out on its bond, the investors  cease to be the 
beneficiaries of the life insurance policy, and the bonding company takes their place and 
becomes the beneficiary.   
2. PCI’s Marketing To Issuers
 
26. Although PCI principally sold its bonds to life settlement issuers, it knew or was 
reckless in not knowing that its bonds were an indispensible part of subsequent life settlement 
9 
 

offerings by those issuers to end investors.  Indeed, PCI developed and marketed its life 
settlement bonds to appeal to individual retail investors and promoted its bonds as an innovation 
over unbonded life settlement investments and as a way for investors to preserve and protect 
their return on investment.   
27. From at least November 2004 to the present, PCI’s website has included 
the following description of its role in the process:  
Life Settlement & Viaticals 
PCI  now  provides  financial  guarantee  bonds  to  investors  who  
purchase  secondary  market  life  insurance  policies.    These  “life  
expectancy  guarantee  bonds”  are  structured  to  assist  and  protect  
the  investor[’]s  investment  while  focusing  on  maintaining  and  
preserving the investor[’]s return on investment (ROI). 
 
Further,  the  addition  of  the  PCI  “life  expectancy  guarantee  bond”  
converts  the  investment  from  an  unknown  into  a  certain  maturity  
date.    This  innovation  allows  the  investment  to  become  far  more  
controlled and eliminates cash flow volatility.  Institutional lenders 
see  the  PCI  “life  expectancy  guarantee  bond”  as  an  additional  
collateral  enhancement  to  portfolios  presented  as  well  as  the  
mitigation of the ability for repayment. 
 
PCI’s international presence has brought forth investors worldwide 
who  have  developed  a  keen  acceptance  to  purchasing  life  policies  
as  a  newly  fashioned  investment  tool  for  garnishing  higher  yield  
returns with heightened tax liberties with little if no risk. 
 
*    *     *     *     * 
 
Life  policies  are  purchased  direct  from  policy  owners  by  licensed  
“life  settlement  companies.”    Policies  purchased  are  from  either  
seniors  or  ailing  individuals  who  for  one  reason  or  another  have  
chosen  that  it  is  in  their  best  interest  to  sell  their  life  policy  for  
immediate   cash.      The   “life   settlement   company”   then   either   
includes  as  a  package  the  PCI  “life  settlement  guarantee  bond”  
when selling “life settlements” to the investors or has the investor 
contract with PCI directly. 
10 
 

3. A&O Bonded Life Settlements 
28. In November 2004, A&O began marketing and selling bonded life settlements in 
which investors were assigned whole or fractionalized ownership interests in a specific life 
insurance policy.  Beginning in January 2007, A&O began marketing and selling capital 
appreciation bonds, which were securitized by a pool of life insurance policies.  A&O sold these 
investments to more than 800 retail investors, located in 37 states, including Virginia. 
29. Underlying A&O’s bonded life settlements and capital appreciation bonds are 49 
life insurance policies, 35 of which were bonded by PCI.  PCI bonded all of the policies 
underlying the whole and fractionalized interests sold by A&O since 2004.  It bonded a portion 
of the policies that make up the pool of policies underlying A&O’s capital appreciation bonds, 
though every pool included at least one policy that was bonded by PCI.  The 35 policies bonded 
by PCI have a collective face value of more than $150 million.  Although most of the PCI bonds 
designated an A&O-related entity as the bondholder, the end investors are the intended 
beneficiaries and, in some instances, such as where an end investor purchased a large percentage 
of the associated life settlement investment, PCI’s bond designates the end investor and an 
A&O-related entity as co-bondholders.  
30. Each bond that PCI issued in connection with A&O life settlements obligates PCI 
to pay the face value of the underlying policy if the insured does not die by the life expectancy 
termination date (usually the date reflected in the life expectancy certificate plus an additional 
three to six months), provided that a claim is submitted to PCI within 90 days after passage of 
the life expectancy termination date or within 90 days plus an additional three month settling 
period. 
11 
 

31. PCI was paid a premium that equaled 6% of the face value of each underlying life 
insurance policy, or approximately $9 million in total for the more than $150 million in life 
insurance policies underlying A&O’s bonded life settlement offerings.  The premiums were 
wired to an account held in the name of Relief Defendant Desarrollos Comerciales Ronim, S.A., 
at the Banco de Costa Rica, in San Jose, Costa Rica (Account No. XXX3824 U.S. Dollar 
Account). 
4. The ASA Bonded Life Settlement
 
32. From March through December 2007, ASA sold fractionalized interests in a 
single $5 million bonded life insurance policy, which was bonded by PCI.  This bond obligates 
PCI to pay the face value of the underlying life insurance policy ($5 million) if (i) the insured 
does not die by December 3, 2010, plus an additional 3 month settling period (or, by March 3, 
2011) and (ii) a claim is submitted to PCI within 90 days after March 3, 2011.  ASA is the 
bondholder for this PCI bond, but, the end investors are the intended beneficiaries.  PCI was paid 
a premium of $400,000, or 8%, of the face value of the underlying $5 million life insurance 
policy.  PCI’s payment was wired to an account held in the name of Relief Defendant 
Desarrollos Comerciales Ronim, S.A., at the Banco de Costa Rica, in San Jose, Costa Rica. 
5. Other Bonded Life Settlements
 
33. PCI has also bonded life insurance policies underlying life settlements sold by the 
following U.S.- and Canada-based issuers, among others: Acclivity Financial, LLC; American 
Pegasus LDG, LLC; Assured Benefits Corporation; Bonded Life Fund, LLC; Consolidated 
Wealth Holdings, Inc.; Granite Financial, Inc.; Fox Life, Inc.; Hill Country Funding, LLC; Ceres 
Life Cycle AG & Co.; Standard Clearing Inc.; Libertas American Inc.; and Universal Settlements 
12 
 

International, Inc.  It has also bonded life settlements issued outside of the United States, 
including a Netherlands-based life settlements issuer.   
34. Upon information and belief, PCI and Vargas currently are marketing and 
attempting to sell PCI’s bonds to issuers and others in the United States and abroad.  In 
December 2010, PCI announced that financial guarantee bonds are a current growth area for the 
Company.   
6. PCI’s Overall Exposure
 
35. The overall face value of the life insurance policies bonded by PCI – and sold 
through the above-identified issuers including A&O and ASA – exceeds $670 million.  
36. PCI charged as a premium six to eleven percent of the total face value of each life 
insurance policy that it bonded.  These premium payments, including payments made by A&O, 
ASA and other life settlement issuers, typically were sent to a U.S. dollar-denominated bank 
account in Costa Rica in the name of Relief Defendant Desarrollos Comerciales Ronim S.A.   
37. Additionally, in connection with the life settlement offerings of certain issuers, 
PCI’s premium payments were sent to or flowed through bank accounts in the United States.  For 
example, from at least January 2008 to at least March 2010 (and, on information and belief, 
continuing to the present) investors in PCI-bonded life settlement offerings marketed in the 
Netherlands, Belgium, and other countries wired funds to escrow accounts at TD Bank in the 
United States, maintained by a New Jersey-licensed attorney practicing in Florida.  The attorney 
moved some of those funds to a Premium Reserve Account in the United States, wired some of 
the funds to Vargas’ personal brokerage account held at a U.S. broker-dealer and wired some of 
the funds to the Desarrollos Comerciales Ronim S.A. U.S. dollar-denominated bank account in 
Costa Rica.   
13 
 

B. Defendants Misled Life Settlement Issuers And Investors 
 About PCI’s Financial Strength and Reinsurance Coverage
 
 
38. PCI and Vargas knowingly or recklessly conveyed false and misleading 
information concerning PCI’s assets, creditworthiness and reinsurance to issuers in order to 
become the bonding company for those issuers’ life settlement offerings.  Castillo knowingly or 
recklessly provided false audit certifications.  In providing these misrepresentations to issuers, 
PCI, Vargas and Castillo knew that these issuers would, in turn, convey the false statements to 
sales agents and, ultimately, induce investors to purchase bonded life settlement investments.   
1. PCI’s “Audited” Financial Statements  
Were Materially False and Misleading 
 
39. As PCI’s purported “independent auditor,” Castillo issued clean audit opinions on 
PCI’s financial statements from at least 2003 through 2009.  However, Castillo never actually 
conducted an audit of PCI’s financial statements for those years.  The underlying financial 
statements were materially false and misleading and overstated PCI’s ability to satisfy its 
obligations as a life settlement bonding company.   
a) PCI’s Financials Were Not Audited
 
 
40. Each year, from at least Fiscal Year 2003 through Fiscal Year 2009, Castillo 
signed an audit report stating that he had audited PCI’s financial statements in accordance with 
generally accepted auditing standards and expressing his opinion that PCI’s accompanying 
financial statements “present fairly, in all material respects, the financial position of [PCI] in 
conformity with generally accepted accounting principles.”   
41. Contrary to Castillo’s representations, however, Castillo did not conduct an audit 
of PCI’s financial statements for any of those years.  Castillo instead accepted Vargas’s verbal 
representations as to PCI’s finances and merely signed his name to his audit opinion. 
14 
 

42. In early February 2010, after learning of a regulatory inquiry into his conduct, 
Castillo told Vargas that he had destroyed or was in the process of destroying all of his emails 
with Vargas and he recommended that Vargas do the same.  Castillo then proposed to begin 
work to create the audit work papers for the prior four years (i.e., October 1, 2005 through 
September 30, 2009).  
43. In an email to Vargas on February 12, 2010, Castillo acknowledged that he had 
omitted basic audit procedures and relied instead on Vargas when preparing his audit opinion.  
He suggested manufacturing backup to support PCI’s financial statements for its most recent 
fiscal years and proposed to Vargas the following: 
1.  I will send you some documents for your signature, which I never got, 
such as the Letter of Management, etc.  I'll send them to you for review, 
we'll discuss, and then we'll find a way for you to get them to me. 
2.  Would it be possible for you to send me photocopies of real documents 
that smell of money (in other words, [documents] that show a finalized 
transaction, of money collected, of money paid, etc.)?   The more of these 
you can send me, the better. 
 
What I want to set up is a real accounting for each of those four fiscal 
years, and determine what is missing to meet 100% of the figures, as 
pertaining to confirmations, etc. 
 
I know it won't be possible to justify [everything] 100% with real 
documents, BUT THIS IS AUDITING.  I DON'T NEED TO JUSTIFY 
100% TO ANYONE, SINCE AUDITING IS BASED ON SELECTIVE 
PROOF. 
 
I will then set up the accounting to what we need, but will justify my work 
papers with the documents you send me, under the argument that it is the 
result of selective proof.  Do you understand? 
 
44. On February 26, 2010, Castillo emailed Vargas and acknowledged receipt of 
certain information from Vargas.  But, recognizing the daunting task of creating backup for 
multiple years, Castillo limited Vargas’s assignment and proposed he focus only on the period 
from October 1, 2007 onward, i.e.
, PCI’s two most recent fiscal years.  Castillo asked Vargas to 
15 
 

prepare, among other things, a spreadsheet reflecting income from premiums received from the 
sale of PCI’s bonds for those two years.  He ended his email by asking Vargas, “DO YOU 
HAVE ANY REAL ACCOUNTING?  If so, please send me the trial balance.”  
45. On the same day, Castillo followed-up with an email instructing Vargas precisely 
what documents to create, including the following:  
NECESSARY DOCUMENTS FOR FISCAL PERIODS AS OF 
SEPT. 30, 2008 AND SEPT 30, 2009: 
 
ENGAGEMENT LETTER 
 
MANAGEMENT LETTER 
 
*   *   *   * 
 
SOME KIND OF ANNUAL REPORT, EXPLAINING THE KIND 
OF TRANSACTIONS YOU NORMALLY MAKE.  THIS WILL 
HELP ME UNDERSTAND YOUR VARIOUS TYPES OF 
BUSINESS AND WILL SERVE ME AS BACKUP. 
 
*   *   *   * 
 
WOULD IT BE POSSIBLE [FOR YOU] TO PREPARE A 
SUMMARY SHEET FOR EACH YEAR, SHOWING POLICIES 
ISSUED, PREMIUMS PAID AND PREMIUMS OUTSTANDING 
AT THE END OF EACH FISCAL YEAR?  THIS SHEET SHOULD 
INCLUDE TERMS, ETC.  (I’D HAVE TO ADJUST IT TO 
COINCIDE WITH INCOME ON FINANCIAL STATEMENTS.) 
 
*   *   *   * 
 
DO YOU HAVE ANY KIND OF ACCOUNTING SYSTEM?  IF SO, 
PLEASE SEND ME AS MUCH INFORMATION AS POSSIBLE.   
46. In yet another email dated February 26, 2010, Castillo assured Vargas that “I’m 
sure that if I receive enough information I’ll be able to develop an adequate accounting system, 
which, in any case, will also serve you well....  This ... will allow for the creation of real assets 
and investments.” 
16 
 

47. In 2010, despite purportedly having audited PCI’s financial statements since 
2003, Castillo lacked even a basic understanding of life settlements or PCI’s bonds.  For 
example, in an email to Vargas dated February 25, 2010, Castillo wrote:  “Mr. [Vargas], I need 
to understand, in general terms, how bonds work in life insurance policies, or [how] the life 
insurance policies [themselves work].... Does PCI have other types of insurance or reinsurance, 
or just life insurance policies?  I need to know, in order to put together figures.”  
b) PCI Fabricated Its Long-Term Asset
 
48. Upon information and belief, for at least its fiscal years ended September 30, 
2002 through September 30, 2009 (“Fiscal Years 2002 to 2009”), PCI did not use its premium 
payments to create or maintain regular reserves to satisfy its future obligations under its financial 
guarantee bonds.  Accordingly, to satisfy its obligations, PCI would need to liquidate assets.   
49. From at least Fiscal Year 2002 through Fiscal Year 2009, PCI’s financial 
statements reflected “Long Term Assets” that comprised between 70% and 89% of its total 
assets.  The amount of Long Term Assets reflected in PCI’s financial statements was reported as 
follows and, upon information and belief, was a complete fabrication:  
Year 2002 2003 2004 2005 2006 2007 2008 2009 
Long 
Term 
Assets 
209,220,934     193,327,983     193,327,983     193,327,983     193,327,983     120,000,000     150,000,000     150,000,000     
Total 
Assets 
235,532,874     237,400,195     239,574,820     242,603,167     244,699,681     171,716,817     186,924,029     184,082,323     
% of 
Total 
89%                 81%                 81%                 80%                 79%                 70%                 80%                 82%                 
 
50. For Fiscal Year 2002, PCI reported Long Terms Assets of $209,220,934.  This 
amount reflected an increase of $105,892,951 over the value that PCI reported for its Long Term 
Assets for each of the prior fiscal years, i.e., Fiscal Years 1999 to 2001. 
51. For Fiscal Year 2003, PCI reported Long Term Assets of $193,327,983, an 
amount that PCI held constant through Fiscal Year 2006.  In connection with Castillo’s Fiscal 
17 
 

Year 2006 “audit” of PCI’s financial statements, Castillo and Vargas sought to manufacture audit 
backup to create the appearance that the Long Term Asset was a promissory note held by Grove 
Management Limited (“Grove Management”), a company in Gibraltar.  Castillo drafted for 
Vargas’ signature an audit confirmation letter which asked Grove Management to confirm to 
Castillo that it owed $193,327,983.10 to PCI pursuant to a renewable promissory note, with a 1-
year term, and an annual interest rate of 7.15%.   
52. Upon information and belief, Grove Management was a shell company that did 
not owe PCI $193,327,983.10, or any other amount, pursuant to a promissory note or any other 
financial instrument.  Rather, upon information and belief, Grove Management existed solely to 
provide false documentation to support the existence of PCI’s primary assets. 
53. Vargas was a manager and director of Grove Management.  He was the sole 
person with whom Fiduciary Group – a Gibraltar corporate fiduciary company that Vargas used 
to create Grove Management – communicated regarding Grove Management’s corporate affairs.  
For example, in July 2007, a mere four months after Castillo drafted the above audit 
confirmation letter, a representative of the Fiduciary Group emailed Vargas and informed Vargas 
that (i) Grove Management is no longer in good standing in Gibraltar as a result of its failure to 
file annual financial statements with the Companies Registry in Gibraltar since December 31, 
2001 and (ii) the Gibraltar Company Registries therefore could not provide a certificate of good 
standing, which, in turn, it warned Vargas, might affect the willingness of banks to continue 
operation of the company’s bank accounts.  Also, beginning in February 2008, Fiduciary Group 
again reached out to Vargas relating to Grove Management’s non-payment of the fees necessary 
to maintain it on the statutory registers.  
18 
 

54. Following the February 2008 communications from Fiduciary Group, Vargas 
asked Castillo whether it was necessary to keep Grove Management active.  Castillo opined that 
the accounts could be cancelled but that doing so “takes a little explaining.”  He reminded 
Vargas that “[t]he purpose of [this] account was to maintain the ... ‘Promissory Note.’”  He and 
Vargas expressed concern that Grove Management was to issue “certifications for all the years” 
– a reference to audit confirmation letters relating to the Long-Term Asset – but also concluded 
that it is unlikely any “authority” would request the certifications from PCI.  Ultimately, Vargas 
did not pay the statutory fees, and Grove Management was stricken from the Gibraltar 
Companies Registry on May 12, 2008.   
55. Just a few months earlier, recognizing that they could not keep up their fraud 
forever, Castillo and Vargas discussed in emails the idea of reducing the size of PCI’s Long 
Term Asset to a smaller amount that would be both less “conspicuous” and “dangerous.”  
Castillo suggested using Grove Management “to create the ... IOU but for much smaller 
amounts.”  He explained that, “smaller clients are afraid of getting close to such a big company, 
and big clients are attracted but demand much more information than we can provide.”  In 
suggesting that PCI reduce the size of its assets, Castillo expressed to Vargas the view that PCI 
could not “keep up the pace that has been established, with interest and dividends in the millions, 
which ultimately ... attract attention or raise red flags about things that have to be looked into.”  
He nonetheless emphasized the need for support for the Fiscal Year 2007 audit and thus the need 
for some entity to create the paperwork supporting the audit.   
56. PCI reported Long Term Assets valued at $120 million in its Fiscal Year 2007 
financial statements, an arbitrary, unexplained and substantial reduction from the $193,327,983 
that PCI had reported for the prior four fiscal years.  In its Fiscal Year 2008 and 2009 financial 
19 
 

statements, PCI reported Long Term Assets in the amount of $150 million, another arbitrary, 
unexplained and substantial change. 
57. Defendants’ explanations of the Long Term Asset varied depending on the 
audience.  For example, in the notes to its Fiscal Year 2007, 2008 and 2009 financial statements, 
PCI states that its “Surplus” (a term that is not defined but that appears intended to relate to the 
Long Term Asset) is invested 50 percent in short
 term assets, 40 percent in medium term assets 
and 10 percent in cash and cash equivalents.  In September 2009, in a letter intended to assist in 
the marketing of its bonds, Vargas stated that PCI’s short-term liquidity is under pressure 
because it was required to pay out on certain bonds, but, its “long term asset base is secured in 
U.S. and Canadian Government long term investments, property, and so on.”   
58. In February 2010, in the same email in which Castillo instructed Vargas to create 
backup support for his “audits” of Fiscal Year 2008 and 2009, Castillo asked Vargas: 
DO      YOU      HAVE      ANY      INTEREST-BEARING      INVESTMENTS?            
REMEMBER, WE HAVE PUT INTEREST INCOME ON THE STATEMENTS.  
ANY  RELATED  INFORMATION  WOULD  BE  USEFUL.    THIS  WOULD  
ALSO  HELP  ME  PREPARE  LONG-TERM  ASSET  CERTIFICATIONS.    I  
DON’T   THINK   ONE   SINGLE   CERTIFICATION   WILL   BE   ENOUGH,   
UNLESS THERE IS NO OTHER CHOICE.  BUT IF YOU HAVE ANY OTHER 
TYPES  OF  INVESTMENTS  ...  THAT  WOULD  HELP  ME.    THE  PROBLEM  
IS  THAT  THE  LONG-TERM  ASSET  AMOUNT  IS  THE  ITEM  ANYONE  
WOULD  TRY  TO  SHOOT  DOWN,  SO  WE  HAVE  TO  MAKE  EVERY  
EFFORT TO AVOID THAT [FROM HAPPENING]. 
c) PCI Fabricated Other Assets
 
59. Upon information and belief, PCI, Vargas and Castillo fabricated other assets 
reported on PCI’s Fiscal Year 2003 to 2009 financial statements as well.  For example, in 
connection with Castillo’s Fiscal Year 2006 “audit” of PCI’s financial statements, Castillo 
drafted an audit confirmation letter to be sent by Vargas to Myta Enterprises Limited (“MYTA”), 
another company in Gibraltar, asking MYTA to confirm to Castillo that it was holding on PCI’s 
20 
 

behalf an $18 million one-year, renewable, certificate of deposit that bore an annual interest rate 
of 11.5% per year.  As with Grove Management, in February 2008 emails, Vargas and Castillo 
discussed whether it was worth paying to keep MYTA active as a Gibraltar company.  Castillo 
acknowledged in a February 28, 2008 email to Vargas that the “purpose of [this] account[] was 
to maintain the ‘Certificate of Deposit.’”  Ultimately, Vargas did not pay the statutory fees, and 
MYTA was stricken from the Gibraltar Companies Registry on May 23, 2008.   
d) PCI’s Materially Inflated Financials
 
Were Provided To Issuers And Investors 
60. Vargas and others at PCI routinely provided copies of PCI’s Castillo-audited 
financials to life settlement issuers while issuers were conducting due diligence on PCI and 
subsequent to then, when issuers requested updates.   
2. PCI Fraudulently Obtained A Favorable Rating 
From D&B And Then Made Material Misrepresentations 
In Its Marketing Materials About The Ratings
 
61. From at least October 2004 to the present, in an effort to bolster PCI’s credibility 
as a viable provider of life settlement bonds, PCI paid D&B to generate business information 
reports and provide a rating for the company.  The rating awarded by D&B – “5A-S” – was 
based on PCI’s materially false and misleading “audited” financial statements, which PCI 
typically updated and provided to D&B at the conclusion of each fiscal year through Fiscal Year 
2009.  
62. The first part of D&B’s rating is an estimate of the company’s financial strength 
and is based on the company’s self-reported net worth.  PCI was automatically assigned the “5A” 
rating because its materially false and misleading financial statements indicated that it had a net 
worth higher than $50 million.  D&B assigns the first part of its rating based on company-
21 
 

provided data and does not independently verify the accuracy of the data provided, which, in the 
case of PCI, was purportedly audited by Castillo. 
63. The second part of D&B’s rating is a composite credit appraisal, but, because PCI 
is a service company and D&B does not perform credit appraisals of service companies, PCI was 
automatically assigned an “S,” which the report explains means “Service -- Not Applicable – No 
Condition Assigned.”  PCI’s overall “5A-S” rating did not reflect any qualitative assessment by 
D&B. 
64. PCI and Vargas knew that D&B used the “audited” financial statements as the 
sole basis for its rating.  They provided this information to D&B for the purpose of fraudulently 
procuring a falsely high rating.   
65. Castillo knew, or recklessly failed to know, that PCI was providing his false audit 
reports to D&B to obtain a high rating because Vargas told him that he was providing the audited 
financials to D&B and, on occasion, Castillo communicated directly with D&B or assisted 
Vargas in responding to D&B inquiries about PCI’s financial statements.  For example, in March 
and April 2010, a quality assurance employee at D&B became concerned about the Long Term 
Assets that PCI reported on its financial statements for Fiscal Years 2008 and 2009 and sought 
from PCI additional information about those assets.  Vargas turned to Castillo for help in 
phrasing a response.  Ultimately, using language suggested by Castillo and approved by Vargas, 
PCI evaded D&B’s inquiry by responding as follows:  
During  the  course  of  the  years,  PCI  has  been  fully  committed  to  protect  
sensitive/confidential information” and “[a]s support of that commitment, 
our   Board   of   Directors,   in   compliance   with   a   Resolution   of   our   
Shareholders and Investors, instituted an ordinance several years ago that 
prohibits Management from disclosing [the requested information] to any 
external  parties.    Long  term  assets  is  an  account  that  has  been  audited  
during all of our years in business, with no concern whatsoever in regards 
to its accuracy and liquidity.  
22 
 

Also, when D&B first inquired about PCI’s Long Term Assets, Castillo revised the notes to 
PCI’s financial statements to describe the Long Term Assets as “50% in very short term assets, 
40% in medium term assets, and 10% in cash or cash equivalents.”  
66. Vargas and others at PCI routinely provided copies of PCI’s D&B reports and 
ratings to life settlement issuers while issuers were conducting due diligence on PCI and 
subsequent to then, when issuers requested updates.   
67. Additionally, from at least October 2004 to the present, PCI and Vargas not only 
touted PCI’s D&B rating, but also, they suggested to issuers and the public that the D&B rating 
was a reflection of substantive analysis and review by D&B.  PCI has stated on its website since 
October 2004, that: 
As  a  private  fully  recognized  insurance  company,  PCI  has  chosen  to  use  
the  rating  services  of  [D&B]  Internationally.    PCI’s  strict  underwriting  
guidelines  [are]  responsible  for  maintaining  the  highest  rating  attainable  
(5A) from D&B indicating successful customer satisfaction and the ability 
to maintain one of the insurance industry lowest loss ratios.   
Contrary to PCI’s claim, the D&B rating was unrelated to “customer satisfaction” and did not 
reflect low loss ratios or any appraisal of PCI’s credit-worthiness.  It was based solely on PCI’s 
materially false and misleading financials.  Moreover, the highest possible D&B credit appraisal 
ratings were numerical (1-4), with “1” being the highest – i.e.
 “5A-S” is not the highest possible 
rating, “5A-1” is.   PCI reiterated the rating and its characterization of the rating in brochures that 
were provided to life settlement issuers and their sales force as well.   
3. PCI Did Not Have Reinsurance Coverage 
68. PCI and Vargas also informed issuers that PCI had extensive reinsurance that 
would cover investors in the event that PCI could not meet its own bonding obligations.  They 
informed issuers that PCI has a “bouquet of reinsurance treaties” which are underwritten by 
reinsurance companies with an A.M. BEST rating of “A” or better.   
23 
 

69. In addition to their verbal representations to issuers, PCI routinely provided 
issuers with a sample PCI bond that described the reinsurance coverage.  For example, during the 
due diligence phase with A&O and ASA, PCI provided a sample of a bond that had been issued 
in connection with another issuer’s life settlement offering.  The bond that stated, in part, in 
“Addendum A”: 
Reinsurance Provisions Endorsement  
[PCI’s bond] will be declared and reinsured under the provisions of 
PCI’s bouquet of reinsurance treaties that are in full force and 
effect underwritten by globally recognized reinsurance companies 
which are rated by A.M. BEST of “A” or better, providing 
protection to PCI for any valid and insurable loss declared and 
included under the treaty provisions.  
A Declaration attached to the sample bond read, in part, that PCI’s “bouquet of reinsurers share 
up to 85% of this bond according to their respective treaties.  Such treaties are currently 
underwritten by the following group of reinsurers.”  The sample bond also listed eighteen 
different reinsurers and their A.M.  Best ratings, including: (1) Zurich, (2) AIG, (3) Hannover, 
(4) General and Cologne RE, (5) Bayerische Ruck, (6) Swiss RE, (7) Baloise, (8) Royal & Sun 
Alliance, (9) Winterthur, (10) NAC RE, (11) AON RE, (12) AXA, (13) St. Pauls RE, (14) 
Munich RE, (15) ING, (16) Allianz, (17) Mapfre RE, and (18) Tryg-Baltica Intl. 
70. Upon information and belief, PCI did not and does not have reinsurance coverage 
or any other contractual relationship with the reinsurers listed in its sample bond.    
C. PCI Misled Life Settlements Issuers, Which, In Turn, 
Marketed PCI’s Bonds to Investors as an  
Indispensible Element of the Bonded Life Settlement Offerings
 
 
71. Life settlement issuers and their sales agents created their own marketing 
materials to sell bonded life settlements to investors and repeated the same misleading statements 
that PCI had provided to them about PCI’s financials, ratings and reinsurance.   
24 
 

1. A&O’s Repetition of PCI’s Misleading Representations 
 
72. Prior to entering into a relationship with PCI, A&O and its principals performed 
due diligence on PCI.  As part of that due diligence, PCI provided A&O with numerous 
documents, including:  (a) PCI’s audited financial statements for the fiscal year ended September 
30, 2003 with Castillo’s accompanying Independent Auditor’s Report dated January 31, 2004; 
(b) a D&B report on PCI dated October 19, 2004 with PCI’s financial statements for the fiscal 
year ended September 30, 2002; (c) pages from PCI’s website that  advertised D&B’s “5A-S” 
rating of PCI and characterized the rating as the “highest rating attainable from D&B” and stated 
that the rating “indicat[es] successful customer satisfaction and the ability to maintain one of the 
insurance industry’s] lowest loss ratios”; and (d) a sample PCI bond that included reinsurance 
endorsements which represent that the bond will be reinsured under “the provisions of PCI’s 
bouquet of reinsurance treaties” and lists 18 reinsurers (rated “A” or better by A.M. Best) that 
currently underwrite such treaties.  After A&O began marketing its life settlement offerings, PCI 
continued providing A&O with updated copies of D&B reports and “audited” financial 
statements.  
73. PCI continued to provide materially false and misleading information to A&O 
even after the due diligence phase.  For example, in a May 2007 letter from PCI to A&O, PCI 
reaffirmed the supposed existence of PCI’s reinsurance coverage.  The letter states that PCI’s life 
settlement bonds “will be declared and reinsured under the provisions of PCI’s bouquet 
reinsurance treaties that are currently in force and effect,” and that PCI’s “bouquet of reinsurers 
share a minimum of 90% of such bonds by participations according to their treaties.”  The letter 
identifies ten reinsurance companies that PCI represented “will reinsure all policies in part or 
whole.”   Additionally, PCI routinely emailed its materially false “audited” financial statements 
25 
 

to A&O and, upon information and belief, A&O periodically purchased or received D&B reports 
that contained PCI’s updated financials and ratings.  A&O representatives also met with Vargas 
and traveled to Costa Rica.  PCI’s website also continuously touted the falsely-obtained D&B 
rating and PCI’s misleading description of the rating.  
74. A&O created promotional materials for its life settlement products that reflected 
the misrepresentations it obtained from PCI, and then provided those materials to its sales agents 
to distribute to potential investors.  A&O’s website, echoing statements on PCI’s website, 
emphasized the crucial role of the bonding company in its life settlement offerings:  
How can a bond increase my investment’s security? 
We utilize the reinsurance bond to convert the investment from an 
unknown into a certain maturity date.  This innovation allows you 
to have much more control and eliminates cash flow volatility.  It 
acts as an additional collateral enhancement to portfolios as well as 
a  mitigation  of  the  ability  for  repayment.    If  you  did  not  have  the  
bond  your  annual  return  could  be  significantly  reduced  if  the  
insured  lives  beyond  the  anticipated  date  of  death  as  projected  by  
the  life  expectancy  report.    If  the  insured  should  outlive  the  
policy’s  expiration  date,  the  bond  will  pay  you  the  entire  death  
benefit.  
 
75. A&O sales agents repeated the false and misleading information received from 
A&O (and originally generated by PCI) in marketing these bonded life settlements to investors.  
One Minnesota-based sales agent received a D&B report (with the false 5A-S rating) and a 
sample bond reflecting PCI’s supposed reinsurance certifications.  After confirming the accuracy 
of the D&B rating with a PCI employee, the sales agent generated several different bonded life 
settlement marketing brochures that emphasized PCI’s D&B rating and its reinsurance.  The 
sales agent provided this information to prospective investors and ultimately convinced thirteen 
people to invest a total of approximately $3 million in the A&O offering.  In another instance, a 
North Carolina-based sales agent informed a customer that PCI had D&B’s “highest rating” and 
26 
 

was reinsured “by some of the biggest companies around,” including AIG and Swiss Re.  As a 
result, the customer invested $254,000 in the A&O offering.   
2. ASA’s  Repetition of PCI’s Misleading Representations 
 
76. As part of ASA’s due diligence, PCI provided ASA with similar documents to 
those that it provided to A&O:  pages from PCI’s website that discussed its D&B 5A-S rating; a 
copy a D&B report dated October 19, 2004 that was based on the “audited” financial statements; 
and a sample PCI bond that included similar reinsurance endorsements.  Additionally, in 
September 2007, two months before PCI issued its bond, Vargas caused PCI to provide ASA 
with an “audited” financial statement for PCI’s Fiscal Years 2006 and a 2007 D&B report that 
reflected the same 5A-S rating.   
77. ASA provided this false information to sales agents who, in turn, forwarded it to 
investors.  In one instance, a sales agent specifically used the PCI bond to sell the remaining 
investor slots in the ASA offering.  In December 2007, the sales agent convinced a Texas couple 
– who had previously declined to invest because a bonding company was not in place – to 
participate in the ASA offering by emphasizing PCI and its 5A-S rating, which he described as 
the “highest financial rating available” from D&B.   
78. In bonding the life insurance policy underlying ASA’s offering in late 2007, PCI 
and Vargas violated a cease-and-desist order issued by the Texas Department of Insurance in 
2006 that prohibited PCI from engaging in unauthorized insurance business in Texas.  PCI and 
Vargas similarly ignored a Texas State Securities Board’s cease-and-desist order against PCI in 
2008.  Rather than stop doing business in Texas, PCI instead authorized a Texas company to 
serve as its representative in the U.S. and asked potential Texas-based customers to use an 
address outside of Texas when conducting its PCI-related business.   
27 
 

D. Investors Traded As A Result Of PCI’s Misleading Representations 
79. PCI’s fraudulent representations induced investors to purchase life settlement 
investments.  Many investors around the country lost (or, over the next several years, stand to 
lose) money from such investments as a result of PCI’s representations.  Some of these investors 
were in the Eastern District of Virginia.  
E. Defendants’ Fraudulent Actions Are Continuing
 
80. PCI’s potential obligations to its bondholders will increase dramatically in the 
years that lie immediately ahead.  PCI bonded approximately $67 million worth of life insurance 
policies that reached their life expectancy termination date in 2010.  It bonded more than $115 
million, $180 million and $168 million of life insurance policies that will reach their termination 
dates in 2011, 2012, and 2013, respectively.  As the investment amount reaching the life 
expectancy date increases, so does PCI’s exposure.   
81. Recently, PCI has been forced to use incoming premiums on a new life settlement 
offering to make partial payments on claims lodged against PCI bonds on investments in which 
the policyholder outlived his or her life expectancy.  For example, in April 2010, PCI used 
money from the Premium Reinsurance Reserve Account maintained by a U.S. escrow agent at 
TD Bank to make a partial payment under a settlement agreement that Vargas reached with the 
Trustee in the A&O bankruptcy case pending in federal bankruptcy court in Chicago.  Using new 
premiums to pay its bond obligations raises the continued specter that PCI lacks the financial 
wherewithal to meet its dramatically increasing obligations.   
82. While A&O and ASA are no longer engaged in life settlement offerings, upon 
information and belief, PCI is continuing to market its bonds in connection with ongoing bonded 
life settlement offerings by other issuers.  For example, in 2010, and as part of an effort to obtain 
28 
 

additional business, PCI and Vargas represented to life settlement issuers in the Netherlands that 
PCI maintained its supposed “bouquet” of reinsurance.  As part of these efforts, Vargas 
instructed Castillo to issue a letter certifying that PCI has made payments to purchase such 
reinsurance.  
CAUSES OF ACTION
 
 
FIRST CLAIM 
(AS TO ALL DEFENDANTS)
 
 
Violations of Section 10(b) of the Exchange Act and Rule 10-5
 
83. Paragraphs 1 through 82 are realleged and incorporated by reference. 
84. Defendants, directly or indirectly, singly or in concert with others, in connection 
with the purchase and sale of securities, by use of the means and instrumentalities of interstate 
commerce and by use of the mails have:  (a) employed devices, schemes and artifices to defraud;  
(b) made untrue statements of material facts and omitted to state material facts necessary in order 
to make the statements made, in light of the circumstances under which they were made, not 
misleading; and  (c) engaged in acts, practices and courses of business which operate as a fraud 
and deceit upon purchasers, prospective purchasers and other persons. 
85. As a part of and in furtherance of their scheme, Defendants, directly and 
indirectly, prepared, disseminated or used contracts, written offering documents, promotional 
materials, investor and other correspondence, and oral presentations, which contained untrue 
statements of material facts and misrepresentations of material facts, and which omitted to state 
material facts necessary in order to make the statements made, in light of the circumstances 
under which they were made, not misleading. 
86. Defendants made the referenced misrepresentations and omissions knowingly or 
recklessly disregarding the truth. 
29 
 

87. For these reasons, Defendants have violated and, unless enjoined, will continue to 
violate Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Exchange Act Rule 10b-5 
[17 C.F.R. § 240.10b-5]. 
SECOND CLAIM 
(AS TO ALL DEFENDANTS) 
 
Violations of Section 17(a) of the Securities Act
 
88. Paragraphs 1 through 82 are realleged and incorporated by reference. 
89. Defendants, directly or indirectly, singly or in concert with others, in the offer and 
sale of securities, by use of the means and instruments of transportation and communication in 
interstate commerce and by use of the mails, have: (a) employed devices, schemes or artifices to 
defraud; (b) obtained money or property by means of untrue statements of material fact or 
omissions to state material facts necessary in order to make the statements made, in light of the 
circumstances under which they were made, not misleading; and (c) engaged in transactions, 
practices or courses of business which operate or would operate as a fraud or deceit. 
90. As part of and in furtherance of this scheme, Defendants, directly and indirectly, 
prepared, disseminated or used contracts, written offering documents, promotional materials, 
investor and other correspondence, and oral presentations, which contained untrue statements of 
material fact and which omitted to state material facts necessary in order to make the statements 
made, in light of the circumstances under which they were made, not misleading. 
91. Defendants made the referenced misrepresentations and omissions knowingly, 
recklessly or negligently disregarding the truth. 
92. For these reasons, Defendants have violated, and unless enjoined, will continue to 
violate Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)]. 
THIRD CLAIM 
30 
 

(AS TO CASTILLO ONLY) 
 
Aiding and Abetting Violations of Exchange Act Section 10(b) and Rule 10b-5 and
 
Section 17(a) of the Securities Act
  
 
93. Paragraphs 1 through 82 are realleged and incorporated by reference. 
94. If Castillo did not violate Exchange Act Section 10(b) and Rule 10b-5 and 
Securities Act Section 17(a), in the alternative, Castillo, knowingly or recklessly provided 
substantial assistance to defendants PCI and Vargas in connection with their violations of 
Exchange Act Section 10(b) and Rule 10b-5 and Securities Act Section 17(a). 
95. For these reasons, pursuant to Exchange Act Section 20(e) [15 U.S.C. § 78t(e)], 
Castillo aided and abetted and, unless enjoined, will continue to aid and abet violations of 
Exchange Act Section 10(b)  and Rule 10b-5  and Securities Act Section 17(a) . 
FOURTH CLAIM
 
(AS TO RELIEF DEFENDANT DESARROLLOS COMERCIALES RONIM S.A) 
Constructive Trust 
 
96. Paragraphs 1 through 82 are realleged and incorporated by reference. 
97. Relief Defendant Desarrollos Comerciales Ronim, S.A. was and is PCI’s 
managing general agent.  Bondholder and investor premium payments for the PCI bonds were 
directed to, among other destinations, bank accounts that Desarrollos Comerciales Ronim 
maintained in its name in Costa Rica.  Where Desarrollos Comerciales Ronim opened and 
maintained accounts as PCI’s agent and received and held funds for PCI, those funds should be 
frozen and held in constructive trust for the benefit of the investor-victims. 
31 
 

PRAYER FOR RELIEF 
 WHEREFORE, the Commission respectfully requests that this Court grant the following 
relief: 
I. 
 Temporarily, preliminarily, and permanently enjoin Defendants from violating, or aiding 
and abetting violations of, Section 10(b) and Rule 10b-5 of the Exchange Act and Section 17(a) 
of the Securities Act.  
II. 
 Enter an Order immediately freezing the assets of Defendants and the Relief Defendant 
and directing that all financial or depository institutions comply with the Court’s Order.  
Furthermore, order that Defendants immediately repatriate any funds held at any bank or other 
financial institution not subject to the jurisdiction of the Court, and that they direct the deposit of 
such funds in identified accounts in the United States, pending conclusion of this matter. 
III. 
 Order that Defendants shall file with the Court and serve upon Plaintiff Commission and 
the Court, within 10 days of the issuance of this order or three days prior to a hearing on the 
Commission’s motion for a preliminary injunction, whichever comes first, an accounting, under 
oath, detailing all of their assets and all funds or other assets received from investors and from 
one another. 
IV. 
 Order that Defendants be restrained and enjoined from destroying, removing, mutilating, 
altering, concealing, or disposing of, in any manner, any of their books and records or documents 
32 
 

relating to the matters set forth in the Complaint, or the books and records and such documents of 
any entities under their control, until further order of the Court.  
V. 
 Order the appointment of a receiver for Defendants, for the benefit of investors, to 
marshal, conserve, protect, and hold funds and assets obtained by the Defendants and their 
agents, co-conspirators, and others involved in this scheme, wherever such assets may be found, 
or, with the approval of the Court, dispose of any wasting asset in accordance with the 
application and proposed order provided herewith. 
VI. 
 Order that the parties may commence discovery immediately, and that notice periods be 
shortened to permit the parties to require production of documents, and the taking of depositions 
on 72 hours’ notice. 
VII. 
 Order Defendants to disgorge an amount equal to the funds and benefits they obtained 
illegally as a result of the violations alleged herein, plus prejudgment interest on that amount. 
VIII. 
 Order civil penalties against Defendants pursuant to Section 20(d) of the Securities Act 
[15 U.S.C. § 77t(d)] and Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)] for their 
securities law violations. 
IX. 
 Order that Defendants immediately surrender their passports to the Clerk of this Court, to 
hold until further order of this Court. 
33 
 

34 
 
X. 
 Order such further relief as this Court may deem just and proper. 
Dated: January 19, 2011   Respectfully submitted, 
 
 
 
_________________________________________ 
Robert P. McIntosh 
Office of the United States Attorney 
   Eastern District of Virginia 
600 E. Main Street, 18
th
 Floor 
Richmond, VA 23219 
Tel.: 804-819-5400 
Email: [email protected]
 
 
Local Counsel for Plaintiff 
 
-and- 
 
Charles J. Felker 
Suzanne J. Romajas (pro hac admission pending) 
Michael S. Fuchs 
Mika M. Donlon 
SECURITIES AND EXCHANGE COMMISSION 
100 F Street, NE 
Washington, DC 20549-4030 
Tel: 202-551-4473 (Romajas) 
Email: [email protected]
 
 
Counsel for Plaintiff 
 
 
 

UNITED STATES DISTRICT COURT 
EASTERN DISTRICT OF VIRGINIA 

Richmond Division 
 

 
 
SECURITIES AND EXCHANGE COMMISSION, 

 
Plaintiff, 

- against -  
 

PROVIDENT CAPITAL INDEMNITY, LTD., 
MINOR VARGAS CALVO, and 
JORGE L. CASTILLO,      
       

Defendants,  

and 

DESARROLLOS COMERCIALES RONIM S.A ,  
 

Relief Defendant. 
 

CIVIL ACTION NO. 

___________________ 

 
COMPLAINT  

Plaintiff Securities and Exchange Commission (the “Commission”) alleges as follows: 

SUMMARY  

1. The Commission seeks emergency relief to halt a massive, ongoing fraud by 

Provident Capital Indemnity, Ltd. (“PCI”), an offshore company located in Costa Rica that 

provides financial guarantee bonds on life settlements and claims to protect investors’ interests in 

life insurance policies by promising to pay the death benefit if the insured lives beyond his or her 

estimated life expectancy.    

2. From the mid-2000s to the present, PCI’s bonds were a material component of 

numerous third-party life settlement offerings in the United States and abroad.  Without a bond, a 

life settlement investment is illiquid and open-ended because the investment’s pay-out date and 

return are dependent upon the date of the insured’s death.  PCI’s bonds offered a fixed maturity date 

1 
 



for the investments because PCI’s bond obligated PCI to pay investors (directly or indirectly 

through the life settlement issuer) the face value of the underlying insurance policy by a date certain 

if the insured lived past his life expectancy date.  PCI’s bonds were a material – indeed, 

indispensible – component of the life settlement investment that PCI bonded.   

3. 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.   

4. Specifically, since at least 2003, PCI, Vargas and Castillo represented to life 

settlement issuers, and in turn, the investing public, that Castillo had audited PCI’s financial 

statements in accordance with generally accepted accounting standards.  Contrary to their 

representations, however, 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.  

PCI’s “audited” financial statements reflect what, upon information and belief, appears to be a 

fictitious “Long Term Asset” that has comprised some 70% to 80% of PCI’s total reported assets 

from at least 2003 to the present.  PCI’s “audited” financial statements were provided to Dun & 

Bradstreet (“D&B”), which issued PCI a favorable rating of “5-A/S,” based exclusively on PCI’s 

reported net worth.  PCI then misleadingly represented in its marketing materials that D&B’s 

rating is a reflection of “successful customer satisfaction” and “the ability to maintain one of the 

insurance industry’s lowest loss ratios.”  PCI and Vargas also have represented that PCI was 

2 
 



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.   

5. PCI, Vargas and Castillo knew, or recklessly disregarded, that these 

representations about PCI’s bonds and financial strength were false and misleading.  Further, the 

Defendants’ actions were in connection with the purchase and sale of securities.  It was 

foreseeable, and Defendants knew, that life settlement issuers packaged PCI’s bond with life 

settlement investments, that PCI’s bond was an indispensible component of the investment, and 

that issuers of bonded life settlement offerings repeated Defendants’ misrepresentations to end 

investors.   

6. In February 2010, fearful that regulators would learn of his misconduct, Castillo 

urged Vargas to destroy his emails and other documents, telling Vargas in an email that their “best 

option is to prepare for the worst.”  Castillo then attempted to create backdated audit work papers 

that would evidence his purported audits of PCI’s financial statements, in one instance asking 

Vargas, “DO YOU HAVE ANY REAL ACCOUNTING?”  After working with Vargas to review 

some of PCI’s business records – years after his purported audits – Castillo described the exercise as 

the “first time we’ve had the opportunity to analyze everything . . . better late than never.”  

7. From at least 2004 through March 2010, PCI issued approximately 197 bonds 

backstopping numerous bonded offerings of investments in life insurance policies with a face 

value of more than $670 million.  These offerings were sold in the United States, the 

Netherlands, Belgium, and in other countries, and include life settlement offerings issued by 

A&O Resources Management, Ltd. (“A&O”) and American Settlement Associates LLC 

(“ASA”).  PCI continues to make false and misleading statements and issue bonds on new life 

3 
 



settlement offerings in Europe and, upon information and belief, Vargas is contemplating 

changing PCI’s name to better enable the fraud to continue undetected.   

8. By engaging in the conduct described in this Complaint, defendants PCI, Vargas 

and Castillo, directly or indirectly, singly or in concert, have engaged, and unless enjoined and 

restrained, will again engage in transactions acts, practices, and courses of business that 

constitute violations of Section 17(a) of the Securities Act of 1933 (“Securities Act”) [15 U.S.C. 

§ 77q(a)], and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) [15 

U.S.C. § 78j(b)], and Exchange Act Rule 10b-5 [17 C.F.R. § 240.10b-5].  Alternatively, Castillo 

aided and abetted PCI’s and Vargas’s violations of Securities Act Section 17(a) and Exchange 

Act Section 10(b) and Exchange Act Rule 10b-5.  

9. Relief Defendant Desarrollos Comerciales Ronim S.A. received some or all of the 

proceeds of defendants’ unlawful scheme under circumstances in which it is not just, equitable or 

conscionable for Desarrollos Comerciales Ronim, S.A. to be so enriched.   

10. The Commission, in the interest of protecting the public from any further 

unscrupulous and illegal activity, brings this action against the Defendants, seeking temporary, 

preliminary and permanent injunctive relief, disgorgement of all illicit profits and benefits 

Defendants have received plus accrued prejudgment interest and a civil monetary penalty.  The 

Commission also seeks an asset freeze, an accounting and other incidental relief, as well as the 

appointment of a receiver to take possession and control of Defendants’ assets for the protection 

of Defendants’ victims.   

4 
 



JURISDICTION AND VENUE 

11. The life settlement offerings that were bonded by PCI are “securities” under 

Section 2(1) of the Securities Act (“Securities Act”) [15 U.S.C. § 77b] and Section 3(a)(10) of 

the Exchange Act (“Exchange Act”) [15 U.S.C. § 78c].   

12. Plaintiff Commission brings this action under the authority conferred upon it by 

Securities Act Sections 20(b) through 20(e) [15 U.S.C. § 77t(b)-77t(e)] and Exchange Act 

Sections 21(d) through 21(e) [15 U.S.C. §§ 78u(d)-78u(e)]. 

13. This Court has jurisdiction over this action pursuant to Securities Act Section 

22(a) [15 U.S.C. § 77v(a)] and Exchange Act Section 27 [15 U.S.C. § 78aa].  Venue is proper 

because certain of the acts, practices, transactions and courses of business alleged herein 

occurred within the Eastern District of Virginia.   

DEFENDANTS 

14. Provident Capital Indemnity Ltd. (“PCI” or the “Company”) is organized 

under the laws of the Commonwealth of Dominica and is headquartered in San Rafael, Heredia, 

Costa Rica, where it is managed under contract by Desarrollos Comerciales Ronim S.A.  PCI 

purports to be an insurance and reinsurance company.  It states on its website – 

www.providentinsurances.com – that PCI has been underwriting a profitable book of business 

for over nineteen years, in over forty-eight countries, and in seventeen currencies.  PCI has never 

been registered as an insurer and has never been authorized to conduct the business of insurance 

in the United States.    PCI’s stock has never been registered with the Commission.    In 

December 2010, PCI announced that it was approved as a regulated reinsurance company in 

Ecuador and Indonesia. 

5 
 



15. Minor Vargas Calvo (“Vargas”), 51, is a citizen and resident of Costa Rica.  He 

is the President of PCI and of Desarrollos Comerciales Ronim S.A.   Vargas has been active in 

PCI’s business since 2002.  By at least 2004, he became PCI’s President, and he has been its 

majority stockholder since no later than 2005.  Since 2005, PCI has been the subject of at least 

two state regulatory actions, including the following:  In 2006, the Texas Department of 

Insurance entered a cease-and-desist order against PCI for engaging in the unauthorized business 

of insurance in Texas in connection with its issuance of bonds on bonded life settlement 

contracts; in 2008, the Texas State Securities Board, entered a cease-and-desist order against PCI 

for, among other things, failure to register its bonds with the Securities Commissioner of the 

State of Texas and offering securities for sale in Texas without being registered as a securities 

dealer or agent and for engaging in fraud.  Vargas also is president of Grupo Icono, a Costa 

Rican company that markets a number of services and lines of business to soccer teams.   

16. Jorge L. Castillo (“Castillo”) is an accountant who resides in New Jersey.  At all 

times relevant to this Complaint, Castillo held himself out to be a Certified Public Accountant 

licensed in Costa Rica and, through 2009, in New Jersey.  The State of New Jersey Board of 

Accountancy currently lists Castillo’s license as inactive.  Castillo publicly presented himself to 

be PCI’s independent, outside auditor commencing no later than PCI’s fiscal year ended 

September 30, 2003 (“Fiscal Year 2003”).  Since then, Castillo has sought and received cash 

loans from Vargas to help cover medical and other expenses of his family (including his in-laws) 

in the United States and Costa Rica and has received other compensation from Vargas outside of 

the auditing relationship. 

6 
 



OTHER RELEVANT PERSONS/ENTITIES 

17. A&O Resources Management, Ltd. was a Chicago-based life settlement 

company founded in November 2004 by Christian M. Allmendinger (“Allmendinger”) and Brent 

P. Oncale (“Oncale”).  A&O Resources Management, Ltd, together with its affiliates A&O 

Capital Management, LLC; Houston Tanglewood Partners, LLC; A&O Bonded Life Assets, 

LLC; A&O Bonded Life Assets Management, LLC; A&O Life Fund, LLC; A&O Life Fund 

Management, LLC; A&O Life Funds, LP; Life Fund 5.1, LLC; Life Fund 5.1 Management, 

LLC; Life Fund 5.2, LLC; Life Fund 5.2 Management, LLC; AB Revocable Living Fund, LLC; 

AB Revocable Living Fund Management, LLC; A&O Bonded Life Settlements , LLC 

(collectively “A&O”) sold life settlement investments to more than 800 investors in more than 

37 states, including Virginia, and Canada.  PCI bonded a majority of the life insurance policies 

underlying the life settlement investments sold by A&O.  On September 7, 2010, the United 

States Attorney’s Office for the Eastern District of Virginia unsealed indictments against 

Allmendinger and others for conspiracy to commit mail fraud, money laundering, and securities 

fraud based on false statements and misuse of investor funds in connection with the A&O 

offerings.  United States v. Allmendinger, et al., 3:10-CR-00248-REP (E.D.Va.).  Trial is set for 

spring 2011.   

18. American Settlement Associates LLC (“ASA”) was a Houston-based life 

settlement company formed by Charles “Chip” Jordan (“Jordan”) and Kelly T. Gipson 

(“Gipson”).  Commencing in 2007, ASA sold life settlement investments to 56 investors in ten 

states, including Virginia.  PCI bonded the life insurance policy underlying ASA’s life settlement 

investments.   

7 
 



19. Dun & Bradstreet (“D&B”) is a business information company based in New 

Jersey, with offices globally.   The Latin America division of D&B, which is located in Sunrise, 

Florida, provides business information reports and in some cases ratings on companies located in 

34 different Latin American and Caribbean countries.  D&B generates a two-part rating, the first 

of which is based on a company’s net worth, and the second of which is based upon a composite 

credit appraisal.  PCI has paid to have D&B generate and update business information reports 

and ratings on PCI periodically since the late 1990s.   

STATEMENT OF FACTS 
 

A. Life Settlement Offerings Bonded by PCI 

20. Beginning in at least the mid-2000s, PCI began selling First Written Demand 

Financial Guarantee Bonds on life insurance policies underlying numerous so-called “life 

settlements.”   

1. Life Settlements Generally 

21. A life settlement is an investment transaction in which the owner of a life 

insurance policy sells his policy to a third party for an amount that exceeds the policy’s cash 

surrender value but is less than the face value or expected death benefit of the policy.  The “face 

value” or “death benefit” of a life insurance policy is the dollar amount paid by the insurance 

company when the insured dies.  Rather than allow his policy to lapse or surrender it to the 

insurance company for a lower price, the policy owner, who typically has a short life 

expectation, sells his policy in the secondary market to maximize his asset.   

22. A life settlement is typically accomplished through the efforts of a number of 

intermediaries between the policyholder and the policy’s end investor, each of them dealing with 

a specific aspect of the settlement of the underlying life insurance policy.  

8 
 



23. Typically, an insured sells his policy to a life settlement company or life 

settlement provider.  The policy is usually accompanied by, or the life settlement provider 

obtains, a life expectancy assessment which evaluates the insured’s risk of mortality and 

provides an estimated “life expectancy” for the insured -- i.e., an estimated timeframe in which 

the insured is expected to die which, in turn, is the date on which the insurance company is 

expected to pay a death benefit on the insured’s policy. 

24. Life settlement providers often re-sell the life insurance policy to life settlement 

issuers, companies that specialize in the secondary market of life settlement.  Life settlement 

issuers, in turn, market the policies to end investors, oftentimes after first obtaining a financial 

guarantee bond on the underlying policy.  Common ways in which life settlement issuers market 

bonded policies to investors include:  (a) selling fractionalized interests in the life insurance 

policy, or (b) packaging several policies together and selling an interest in the pool of policies.   

25. The end investor in a bonded life settlement purchases the right to receive all or a 

portion of the policy’s death benefit when the insured dies; or, if the insured lives beyond his life 

expectancy date (plus any additional period built into the bond), the investor purchases the right 

to receive directly or indirectly from the bonding company all or a portion of the face value of 

the policy when the trigger date has passed and a claim has been made on the financial guarantee 

bond.  If the bonding company is required to pay out on its bond, the investors  cease to be the 

beneficiaries of the life insurance policy, and the bonding company takes their place and 

becomes the beneficiary.   

2. PCI’s Marketing To Issuers 

26. Although PCI principally sold its bonds to life settlement issuers, it knew or was 

reckless in not knowing that its bonds were an indispensible part of subsequent life settlement 

9 
 



offerings by those issuers to end investors.  Indeed, PCI developed and marketed its life 

settlement bonds to appeal to individual retail investors and promoted its bonds as an innovation 

over unbonded life settlement investments and as a way for investors to preserve and protect 

their return on investment.   

27. From at least November 2004 to the present, PCI’s website has included 

the following description of its role in the process:  

Life Settlement & Viaticals 

PCI now provides financial guarantee bonds to investors who 
purchase secondary market life insurance policies.  These “life 
expectancy guarantee bonds” are structured to assist and protect 
the investor[’]s investment while focusing on maintaining and 
preserving the investor[’]s return on investment (ROI). 
 
Further, the addition of the PCI “life expectancy guarantee bond” 
converts the investment from an unknown into a certain maturity 
date.  This innovation allows the investment to become far more 
controlled and eliminates cash flow volatility.  Institutional lenders 
see the PCI “life expectancy guarantee bond” as an additional 
collateral enhancement to portfolios presented as well as the 
mitigation of the ability for repayment. 
 
PCI’s international presence has brought forth investors worldwide 
who have developed a keen acceptance to purchasing life policies 
as a newly fashioned investment tool for garnishing higher yield 
returns with heightened tax liberties with little if no risk. 
 

*    *     *     *     * 
 
Life policies are purchased direct from policy owners by licensed 
“life settlement companies.”  Policies purchased are from either 
seniors or ailing individuals who for one reason or another have 
chosen that it is in their best interest to sell their life policy for 
immediate cash.  The “life settlement company” then either 
includes as a package the PCI “life settlement guarantee bond” 
when selling “life settlements” to the investors or has the investor 
contract with PCI directly. 

10 
 



3. A&O Bonded Life Settlements 

28. In November 2004, A&O began marketing and selling bonded life settlements in 

which investors were assigned whole or fractionalized ownership interests in a specific life 

insurance policy.  Beginning in January 2007, A&O began marketing and selling capital 

appreciation bonds, which were securitized by a pool of life insurance policies.  A&O sold these 

investments to more than 800 retail investors, located in 37 states, including Virginia. 

29. Underlying A&O’s bonded life settlements and capital appreciation bonds are 49 

life insurance policies, 35 of which were bonded by PCI.  PCI bonded all of the policies 

underlying the whole and fractionalized interests sold by A&O since 2004.  It bonded a portion 

of the policies that make up the pool of policies underlying A&O’s capital appreciation bonds, 

though every pool included at least one policy that was bonded by PCI.  The 35 policies bonded 

by PCI have a collective face value of more than $150 million.  Although most of the PCI bonds 

designated an A&O-related entity as the bondholder, the end investors are the intended 

beneficiaries and, in some instances, such as where an end investor purchased a large percentage 

of the associated life settlement investment, PCI’s bond designates the end investor and an 

A&O-related entity as co-bondholders.  

30. Each bond that PCI issued in connection with A&O life settlements obligates PCI 

to pay the face value of the underlying policy if the insured does not die by the life expectancy 

termination date (usually the date reflected in the life expectancy certificate plus an additional 

three to six months), provided that a claim is submitted to PCI within 90 days after passage of 

the life expectancy termination date or within 90 days plus an additional three month settling 

period. 

11 
 



31. PCI was paid a premium that equaled 6% of the face value of each underlying life 

insurance policy, or approximately $9 million in total for the more than $150 million in life 

insurance policies underlying A&O’s bonded life settlement offerings.  The premiums were 

wired to an account held in the name of Relief Defendant Desarrollos Comerciales Ronim, S.A., 

at the Banco de Costa Rica, in San Jose, Costa Rica (Account No. XXX3824 U.S. Dollar 

Account). 

4. The ASA Bonded Life Settlement 

32. From March through December 2007, ASA sold fractionalized interests in a 

single $5 million bonded life insurance policy, which was bonded by PCI.  This bond obligates 

PCI to pay the face value of the underlying life insurance policy ($5 million) if (i) the insured 

does not die by December 3, 2010, plus an additional 3 month settling period (or, by March 3, 

2011) and (ii) a claim is submitted to PCI within 90 days after March 3, 2011.  ASA is the 

bondholder for this PCI bond, but, the end investors are the intended beneficiaries.  PCI was paid 

a premium of $400,000, or 8%, of the face value of the underlying $5 million life insurance 

policy.  PCI’s payment was wired to an account held in the name of Relief Defendant 

Desarrollos Comerciales Ronim, S.A., at the Banco de Costa Rica, in San Jose, Costa Rica. 

5. Other Bonded Life Settlements 

33. PCI has also bonded life insurance policies underlying life settlements sold by the 

following U.S.- and Canada-based issuers, among others: Acclivity Financial, LLC; American 

Pegasus LDG, LLC; Assured Benefits Corporation; Bonded Life Fund, LLC; Consolidated 

Wealth Holdings, Inc.; Granite Financial, Inc.; Fox Life, Inc.; Hill Country Funding, LLC; Ceres 

Life Cycle AG & Co.; Standard Clearing Inc.; Libertas American Inc.; and Universal Settlements 

12 
 



International, Inc.  It has also bonded life settlements issued outside of the United States, 

including a Netherlands-based life settlements issuer.   

34. Upon information and belief, PCI and Vargas currently are marketing and 

attempting to sell PCI’s bonds to issuers and others in the United States and abroad.  In 

December 2010, PCI announced that financial guarantee bonds are a current growth area for the 

Company.   

6. PCI’s Overall Exposure 

35. The overall face value of the life insurance policies bonded by PCI – and sold 

through the above-identified issuers including A&O and ASA – exceeds $670 million.  

36. PCI charged as a premium six to eleven percent of the total face value of each life 

insurance policy that it bonded.  These premium payments, including payments made by A&O, 

ASA and other life settlement issuers, typically were sent to a U.S. dollar-denominated bank 

account in Costa Rica in the name of Relief Defendant Desarrollos Comerciales Ronim S.A.   

37. Additionally, in connection with the life settlement offerings of certain issuers, 

PCI’s premium payments were sent to or flowed through bank accounts in the United States.  For 

example, from at least January 2008 to at least March 2010 (and, on information and belief, 

continuing to the present) investors in PCI-bonded life settlement offerings marketed in the 

Netherlands, Belgium, and other countries wired funds to escrow accounts at TD Bank in the 

United States, maintained by a New Jersey-licensed attorney practicing in Florida.  The attorney 

moved some of those funds to a Premium Reserve Account in the United States, wired some of 

the funds to Vargas’ personal brokerage account held at a U.S. broker-dealer and wired some of 

the funds to the Desarrollos Comerciales Ronim S.A. U.S. dollar-denominated bank account in 

Costa Rica.   

13 
 



B. Defendants Misled Life Settlement Issuers And Investors 
 About PCI’s Financial Strength and Reinsurance Coverage 

 
38. PCI and Vargas knowingly or recklessly conveyed false and misleading 

information concerning PCI’s assets, creditworthiness and reinsurance to issuers in order to 

become the bonding company for those issuers’ life settlement offerings.  Castillo knowingly or 

recklessly provided false audit certifications.  In providing these misrepresentations to issuers, 

PCI, Vargas and Castillo knew that these issuers would, in turn, convey the false statements to 

sales agents and, ultimately, induce investors to purchase bonded life settlement investments.   

1. PCI’s “Audited” Financial Statements  
Were Materially False and Misleading  

39. As PCI’s purported “independent auditor,” Castillo issued clean audit opinions on 

PCI’s financial statements from at least 2003 through 2009.  However, Castillo never actually 

conducted an audit of PCI’s financial statements for those years.  The underlying financial 

statements were materially false and misleading and overstated PCI’s ability to satisfy its 

obligations as a life settlement bonding company.   

a) PCI’s Financials Were Not Audited 
 

40. Each year, from at least Fiscal Year 2003 through Fiscal Year 2009, Castillo 

signed an audit report stating that he had audited PCI’s financial statements in accordance with 

generally accepted auditing standards and expressing his opinion that PCI’s accompanying 

financial statements “present fairly, in all material respects, the financial position of [PCI] in 

conformity with generally accepted accounting principles.”   

41. Contrary to Castillo’s representations, however, Castillo did not conduct an audit 

of PCI’s financial statements for any of those years.  Castillo instead accepted Vargas’s verbal 

representations as to PCI’s finances and merely signed his name to his audit opinion. 

14 
 



42. In early February 2010, after learning of a regulatory inquiry into his conduct, 

Castillo told Vargas that he had destroyed or was in the process of destroying all of his emails 

with Vargas and he recommended that Vargas do the same.  Castillo then proposed to begin 

work to create the audit work papers for the prior four years (i.e., October 1, 2005 through 

September 30, 2009).  

43. In an email to Vargas on February 12, 2010, Castillo acknowledged that he had 

omitted basic audit procedures and relied instead on Vargas when preparing his audit opinion.  

He suggested manufacturing backup to support PCI’s financial statements for its most recent 

fiscal years and proposed to Vargas the following: 

1.  I will send you some documents for your signature, which I never got, 
such as the Letter of Management, etc.  I'll send them to you for review, 
we'll discuss, and then we'll find a way for you to get them to me. 

2.  Would it be possible for you to send me photocopies of real documents 
that smell of money (in other words, [documents] that show a finalized 
transaction, of money collected, of money paid, etc.)?   The more of these 
you can send me, the better. 
 
What I want to set up is a real accounting for each of those four fiscal 
years, and determine what is missing to meet 100% of the figures, as 
pertaining to confirmations, etc. 
 
I know it won't be possible to justify [everything] 100% with real 
documents, BUT THIS IS AUDITING.  I DON'T NEED TO JUSTIFY 
100% TO ANYONE, SINCE AUDITING IS BASED ON SELECTIVE 
PROOF. 
 
I will then set up the accounting to what we need, but will justify my work 
papers with the documents you send me, under the argument that it is the 
result of selective proof.  Do you understand? 

 
44. On February 26, 2010, Castillo emailed Vargas and acknowledged receipt of 

certain information from Vargas.  But, recognizing the daunting task of creating backup for 

multiple years, Castillo limited Vargas’s assignment and proposed he focus only on the period 

from October 1, 2007 onward, i.e., PCI’s two most recent fiscal years.  Castillo asked Vargas to 

15 
 



prepare, among other things, a spreadsheet reflecting income from premiums received from the 

sale of PCI’s bonds for those two years.  He ended his email by asking Vargas, “DO YOU 

HAVE ANY REAL ACCOUNTING?  If so, please send me the trial balance.”  

45. On the same day, Castillo followed-up with an email instructing Vargas precisely 

what documents to create, including the following:  

NECESSARY DOCUMENTS FOR FISCAL PERIODS AS OF 
SEPT. 30, 2008 AND SEPT 30, 2009: 
 
ENGAGEMENT LETTER 
 
MANAGEMENT LETTER 

 
*   *   *   * 

 
SOME KIND OF ANNUAL REPORT, EXPLAINING THE KIND 
OF TRANSACTIONS YOU NORMALLY MAKE.  THIS WILL 
HELP ME UNDERSTAND YOUR VARIOUS TYPES OF 
BUSINESS AND WILL SERVE ME AS BACKUP. 

 
*   *   *   * 

 
WOULD IT BE POSSIBLE [FOR YOU] TO PREPARE A 
SUMMARY SHEET FOR EACH YEAR, SHOWING POLICIES 
ISSUED, PREMIUMS PAID AND PREMIUMS OUTSTANDING 
AT THE END OF EACH FISCAL YEAR?  THIS SHEET SHOULD 
INCLUDE TERMS, ETC.  (I’D HAVE TO ADJUST IT TO 
COINCIDE WITH INCOME ON FINANCIAL STATEMENTS.) 

 
*   *   *   * 

 
DO YOU HAVE ANY KIND OF ACCOUNTING SYSTEM?  IF SO, 
PLEASE SEND ME AS MUCH INFORMATION AS POSSIBLE.   

46. In yet another email dated February 26, 2010, Castillo assured Vargas that “I’m 

sure that if I receive enough information I’ll be able to develop an adequate accounting system, 

which, in any case, will also serve you well….  This … will allow for the creation of real assets 

and investments.” 

16 
 



47. In 2010, despite purportedly having audited PCI’s financial statements since 

2003, Castillo lacked even a basic understanding of life settlements or PCI’s bonds.  For 

example, in an email to Vargas dated February 25, 2010, Castillo wrote:  “Mr. [Vargas], I need 

to understand, in general terms, how bonds work in life insurance policies, or [how] the life 

insurance policies [themselves work].… Does PCI have other types of insurance or reinsurance, 

or just life insurance policies?  I need to know, in order to put together figures.”  

b) PCI Fabricated Its Long-Term Asset 

48. Upon information and belief, for at least its fiscal years ended September 30, 

2002 through September 30, 2009 (“Fiscal Years 2002 to 2009”), PCI did not use its premium 

payments to create or maintain regular reserves to satisfy its future obligations under its financial 

guarantee bonds.  Accordingly, to satisfy its obligations, PCI would need to liquidate assets.   

49. From at least Fiscal Year 2002 through Fiscal Year 2009, PCI’s financial 

statements reflected “Long Term Assets” that comprised between 70% and 89% of its total 

assets.  The amount of Long Term Assets reflected in PCI’s financial statements was reported as 

follows and, upon information and belief, was a complete fabrication:  

Year 2002 2003 2004 2005 2006 2007 2008 2009 
Long 
Term 
Assets 

209,220,934 193,327,983 193,327,983 193,327,983 193,327,983 120,000,000 150,000,000 150,000,000 

Total 
Assets 235,532,874 237,400,195 239,574,820 242,603,167 244,699,681 171,716,817 186,924,029 184,082,323 

% of 
Total 89% 81% 81% 80% 79% 70% 80% 82% 

 
50. For Fiscal Year 2002, PCI reported Long Terms Assets of $209,220,934.  This 

amount reflected an increase of $105,892,951 over the value that PCI reported for its Long Term 

Assets for each of the prior fiscal years, i.e., Fiscal Years 1999 to 2001. 

51. For Fiscal Year 2003, PCI reported Long Term Assets of $193,327,983, an 

amount that PCI held constant through Fiscal Year 2006.  In connection with Castillo’s Fiscal 

17 
 



Year 2006 “audit” of PCI’s financial statements, Castillo and Vargas sought to manufacture audit 

backup to create the appearance that the Long Term Asset was a promissory note held by Grove 

Management Limited (“Grove Management”), a company in Gibraltar.  Castillo drafted for 

Vargas’ signature an audit confirmation letter which asked Grove Management to confirm to 

Castillo that it owed $193,327,983.10 to PCI pursuant to a renewable promissory note, with a 1-

year term, and an annual interest rate of 7.15%.   

52. Upon information and belief, Grove Management was a shell company that did 

not owe PCI $193,327,983.10, or any other amount, pursuant to a promissory note or any other 

financial instrument.  Rather, upon information and belief, Grove Management existed solely to 

provide false documentation to support the existence of PCI’s primary assets. 

53. Vargas was a manager and director of Grove Management.  He was the sole 

person with whom Fiduciary Group – a Gibraltar corporate fiduciary company that Vargas used 

to create Grove Management – communicated regarding Grove Management’s corporate affairs.  

For example, in July 2007, a mere four months after Castillo drafted the above audit 

confirmation letter, a representative of the Fiduciary Group emailed Vargas and informed Vargas 

that (i) Grove Management is no longer in good standing in Gibraltar as a result of its failure to 

file annual financial statements with the Companies Registry in Gibraltar since December 31, 

2001 and (ii) the Gibraltar Company Registries therefore could not provide a certificate of good 

standing, which, in turn, it warned Vargas, might affect the willingness of banks to continue 

operation of the company’s bank accounts.  Also, beginning in February 2008, Fiduciary Group 

again reached out to Vargas relating to Grove Management’s non-payment of the fees necessary 

to maintain it on the statutory registers.  

18 
 



54. Following the February 2008 communications from Fiduciary Group, Vargas 

asked Castillo whether it was necessary to keep Grove Management active.  Castillo opined that 

the accounts could be cancelled but that doing so “takes a little explaining.”  He reminded 

Vargas that “[t]he purpose of [this] account was to maintain the … ‘Promissory Note.’”  He and 

Vargas expressed concern that Grove Management was to issue “certifications for all the years” 

– a reference to audit confirmation letters relating to the Long-Term Asset – but also concluded 

that it is unlikely any “authority” would request the certifications from PCI.  Ultimately, Vargas 

did not pay the statutory fees, and Grove Management was stricken from the Gibraltar 

Companies Registry on May 12, 2008.   

55. Just a few months earlier, recognizing that they could not keep up their fraud 

forever, Castillo and Vargas discussed in emails the idea of reducing the size of PCI’s Long 

Term Asset to a smaller amount that would be both less “conspicuous” and “dangerous.”  

Castillo suggested using Grove Management “to create the … IOU but for much smaller 

amounts.”  He explained that, “smaller clients are afraid of getting close to such a big company, 

and big clients are attracted but demand much more information than we can provide.”  In 

suggesting that PCI reduce the size of its assets, Castillo expressed to Vargas the view that PCI 

could not “keep up the pace that has been established, with interest and dividends in the millions, 

which ultimately … attract attention or raise red flags about things that have to be looked into.”  

He nonetheless emphasized the need for support for the Fiscal Year 2007 audit and thus the need 

for some entity to create the paperwork supporting the audit.   

56. PCI reported Long Term Assets valued at $120 million in its Fiscal Year 2007 

financial statements, an arbitrary, unexplained and substantial reduction from the $193,327,983 

that PCI had reported for the prior four fiscal years.  In its Fiscal Year 2008 and 2009 financial 

19 
 



statements, PCI reported Long Term Assets in the amount of $150 million, another arbitrary, 

unexplained and substantial change. 

57. Defendants’ explanations of the Long Term Asset varied depending on the 

audience.  For example, in the notes to its Fiscal Year 2007, 2008 and 2009 financial statements, 

PCI states that its “Surplus” (a term that is not defined but that appears intended to relate to the 

Long Term Asset) is invested 50 percent in short term assets, 40 percent in medium term assets 

and 10 percent in cash and cash equivalents.  In September 2009, in a letter intended to assist in 

the marketing of its bonds, Vargas stated that PCI’s short-term liquidity is under pressure 

because it was required to pay out on certain bonds, but, its “long term asset base is secured in 

U.S. and Canadian Government long term investments, property, and so on.”   

58. In February 2010, in the same email in which Castillo instructed Vargas to create 

backup support for his “audits” of Fiscal Year 2008 and 2009, Castillo asked Vargas: 

DO YOU HAVE ANY INTEREST-BEARING INVESTMENTS?  
REMEMBER, WE HAVE PUT INTEREST INCOME ON THE STATEMENTS.  
ANY RELATED INFORMATION WOULD BE USEFUL.  THIS WOULD 
ALSO HELP ME PREPARE LONG-TERM ASSET CERTIFICATIONS.  I 
DON’T THINK ONE SINGLE CERTIFICATION WILL BE ENOUGH, 
UNLESS THERE IS NO OTHER CHOICE.  BUT IF YOU HAVE ANY OTHER 
TYPES OF INVESTMENTS … THAT WOULD HELP ME.  THE PROBLEM 
IS THAT THE LONG-TERM ASSET AMOUNT IS THE ITEM ANYONE 
WOULD TRY TO SHOOT DOWN, SO WE HAVE TO MAKE EVERY 
EFFORT TO AVOID THAT [FROM HAPPENING]. 

c) PCI Fabricated Other Assets 

59. Upon information and belief, PCI, Vargas and Castillo fabricated other assets 

reported on PCI’s Fiscal Year 2003 to 2009 financial statements as well.  For example, in 

connection with Castillo’s Fiscal Year 2006 “audit” of PCI’s financial statements, Castillo 

drafted an audit confirmation letter to be sent by Vargas to Myta Enterprises Limited (“MYTA”), 

another company in Gibraltar, asking MYTA to confirm to Castillo that it was holding on PCI’s 

20behalf an $18 million one-year, renewable, certificate of deposit that bore an annual interest rate 

of 11.5% per year.  As with Grove Management, in February 2008 emails, Vargas and Castillo 

discussed whether it was worth paying to keep MYTA active as a Gibraltar company.  Castillo 

acknowledged in a February 28, 2008 email to Vargas that the “purpose of [this] account[] was 

to maintain the ‘Certificate of Deposit.’”  Ultimately, Vargas did not pay the statutory fees, and 

MYTA was stricken from the Gibraltar Companies Registry on May 23, 2008.   

d) PCI’s Materially Inflated Financials 
Were Provided To Issuers And Investors 

60. Vargas and others at PCI routinely provided copies of PCI’s Castillo-audited 

financials to life settlement issuers while issuers were conducting due diligence on PCI and 

subsequent to then, when issuers requested updates.   

2. PCI Fraudulently Obtained A Favorable Rating 
From D&B And Then Made Material Misrepresentations 
In Its Marketing Materials About The Ratings 

61. From at least October 2004 to the present, in an effort to bolster PCI’s credibility 

as a viable provider of life settlement bonds, PCI paid D&B to generate business information 

reports and provide a rating for the company.  The rating awarded by D&B – “5A-S” – was 

based on PCI’s materially false and misleading “audited” financial statements, which PCI 

typically updated and provided to D&B at the conclusion of each fiscal year through Fiscal Year 

2009.  

62. The first part of D&B’s rating is an estimate of the company’s financial strength 

and is based on the company’s self-reported net worth.  PCI was automatically assigned the “5A” 

rating because its materially false and misleading financial statements indicated that it had a net 

worth higher than $50 million.  D&B assigns the first part of its rating based on company-

21 
 



provided data and does not independently verify the accuracy of the data provided, which, in the 

case of PCI, was purportedly audited by Castillo. 

63. The second part of D&B’s rating is a composite credit appraisal, but, because PCI 

is a service company and D&B does not perform credit appraisals of service companies, PCI was 

automatically assigned an “S,” which the report explains means “Service -- Not Applicable – No 

Condition Assigned.”  PCI’s overall “5A-S” rating did not reflect any qualitative assessment by 

D&B. 

64. PCI and Vargas knew that D&B used the “audited” financial statements as the 

sole basis for its rating.  They provided this information to D&B for the purpose of fraudulently 

procuring a falsely high rating.   

65. Castillo knew, or recklessly failed to know, that PCI was providing his false audit 

reports to D&B to obtain a high rating because Vargas told him that he was providing the audited 

financials to D&B and, on occasion, Castillo communicated directly with D&B or assisted 

Vargas in responding to D&B inquiries about PCI’s financial statements.  For example, in March 

and April 2010, a quality assurance employee at D&B became concerned about the Long Term 

Assets that PCI reported on its financial statements for Fiscal Years 2008 and 2009 and sought 

from PCI additional information about those assets.  Vargas turned to Castillo for help in 

phrasing a response.  Ultimately, using language suggested by Castillo and approved by Vargas, 

PCI evaded D&B’s inquiry by responding as follows:  

During the course of the years, PCI has been fully committed to protect 
sensitive/confidential information” and “[a]s support of that commitment, 
our Board of Directors, in compliance with a Resolution of our 
Shareholders and Investors, instituted an ordinance several years ago that 
prohibits Management from disclosing [the requested information] to any 
external parties.  Long term assets is an account that has been audited 
during all of our years in business, with no concern whatsoever in regards 
to its accuracy and liquidity.  

22 
 



Also, when D&B first inquired about PCI’s Long Term Assets, Castillo revised the notes to 

PCI’s financial statements to describe the Long Term Assets as “50% in very short term assets, 

40% in medium term assets, and 10% in cash or cash equivalents.”  

66. Vargas and others at PCI routinely provided copies of PCI’s D&B reports and 

ratings to life settlement issuers while issuers were conducting due diligence on PCI and 

subsequent to then, when issuers requested updates.   

67. Additionally, from at least October 2004 to the present, PCI and Vargas not only 

touted PCI’s D&B rating, but also, they suggested to issuers and the public that the D&B rating 

was a reflection of substantive analysis and review by D&B.  PCI has stated on its website since 

October 2004, that: 

As a private fully recognized insurance company, PCI has chosen to use 
the rating services of [D&B] Internationally.  PCI’s strict underwriting 
guidelines [are] responsible for maintaining the highest rating attainable 
(5A) from D&B indicating successful customer satisfaction and the ability 
to maintain one of the insurance industry lowest loss ratios.   

Contrary to PCI’s claim, the D&B rating was unrelated to “customer satisfaction” and did not 

reflect low loss ratios or any appraisal of PCI’s credit-worthiness.  It was based solely on PCI’s 

materially false and misleading financials.  Moreover, the highest possible D&B credit appraisal 

ratings were numerical (1-4), with “1” being the highest – i.e. “5A-S” is not the highest possible 

rating, “5A-1” is.   PCI reiterated the rating and its characterization of the rating in brochures that 

were provided to life settlement issuers and their sales force as well.   

3. PCI Did Not Have Reinsurance Coverage 

68. PCI and Vargas also informed issuers that PCI had extensive reinsurance that 

would cover investors in the event that PCI could not meet its own bonding obligations.  They 

informed issuers that PCI has a “bouquet of reinsurance treaties” which are underwritten by 

reinsurance companies with an A.M. BEST rating of “A” or better.   

23 
 



69. In addition to their verbal representations to issuers, PCI routinely provided 

issuers with a sample PCI bond that described the reinsurance coverage.  For example, during the 

due diligence phase with A&O and ASA, PCI provided a sample of a bond that had been issued 

in connection with another issuer’s life settlement offering.  The bond that stated, in part, in 

“Addendum A”: 

Reinsurance Provisions Endorsement  

[PCI’s bond] will be declared and reinsured under the provisions of 
PCI’s bouquet of reinsurance treaties that are in full force and 
effect underwritten by globally recognized reinsurance companies 
which are rated by A.M. BEST of “A” or better, providing 
protection to PCI for any valid and insurable loss declared and 
included under the treaty provisions.  

A Declaration attached to the sample bond read, in part, that PCI’s “bouquet of reinsurers share 

up to 85% of this bond according to their respective treaties.  Such treaties are currently 

underwritten by the following group of reinsurers.”  The sample bond also listed eighteen 

different reinsurers and their A.M.  Best ratings, including: (1) Zurich, (2) AIG, (3) Hannover, 

(4) General and Cologne RE, (5) Bayerische Ruck, (6) Swiss RE, (7) Baloise, (8) Royal & Sun 

Alliance, (9) Winterthur, (10) NAC RE, (11) AON RE, (12) AXA, (13) St. Pauls RE, (14) 

Munich RE, (15) ING, (16) Allianz, (17) Mapfre RE, and (18) Tryg-Baltica Intl. 

70. Upon information and belief, PCI did not and does not have reinsurance coverage 

or any other contractual relationship with the reinsurers listed in its sample bond.    

C. PCI Misled Life Settlements Issuers, Which, In Turn, 
Marketed PCI’s Bonds to Investors as an  
Indispensible Element of the Bonded Life Settlement Offerings 
 

71. Life settlement issuers and their sales agents created their own marketing 

materials to sell bonded life settlements to investors and repeated the same misleading statements 

that PCI had provided to them about PCI’s financials, ratings and reinsurance.   

24 
 



1. A&O’s Repetition of PCI’s Misleading Representations 
 

72. Prior to entering into a relationship with PCI, A&O and its principals performed 

due diligence on PCI.  As part of that due diligence, PCI provided A&O with numerous 

documents, including:  (a) PCI’s audited financial statements for the fiscal year ended September 

30, 2003 with Castillo’s accompanying Independent Auditor’s Report dated January 31, 2004; 

(b) a D&B report on PCI dated October 19, 2004 with PCI’s financial statements for the fiscal 

year ended September 30, 2002; (c) pages from PCI’s website that  advertised D&B’s “5A-S” 

rating of PCI and characterized the rating as the “highest rating attainable from D&B” and stated 

that the rating “indicat[es] successful customer satisfaction and the ability to maintain one of the 

insurance industry’s] lowest loss ratios”; and (d) a sample PCI bond that included reinsurance 

endorsements which represent that the bond will be reinsured under “the provisions of PCI’s 

bouquet of reinsurance treaties” and lists 18 reinsurers (rated “A” or better by A.M. Best) that 

currently underwrite such treaties.  After A&O began marketing its life settlement offerings, PCI 

continued providing A&O with updated copies of D&B reports and “audited” financial 

statements.  

73. PCI continued to provide materially false and misleading information to A&O 

even after the due diligence phase.  For example, in a May 2007 letter from PCI to A&O, PCI 

reaffirmed the supposed existence of PCI’s reinsurance coverage.  The letter states that PCI’s life 

settlement bonds “will be declared and reinsured under the provisions of PCI’s bouquet 

reinsurance treaties that are currently in force and effect,” and that PCI’s “bouquet of reinsurers 

share a minimum of 90% of such bonds by participations according to their treaties.”  The letter 

identifies ten reinsurance companies that PCI represented “will reinsure all policies in part or 

whole.”   Additionally, PCI routinely emailed its materially false “audited” financial statements 

25 
 



to A&O and, upon information and belief, A&O periodically purchased or received D&B reports 

that contained PCI’s updated financials and ratings.  A&O representatives also met with Vargas 

and traveled to Costa Rica.  PCI’s website also continuously touted the falsely-obtained D&B 

rating and PCI’s misleading description of the rating.  

74. A&O created promotional materials for its life settlement products that reflected 

the misrepresentations it obtained from PCI, and then provided those materials to its sales agents 

to distribute to potential investors.  A&O’s website, echoing statements on PCI’s website, 

emphasized the crucial role of the bonding company in its life settlement offerings:  

How can a bond increase my investment’s security? 
We utilize the reinsurance bond to convert the investment from an 
unknown into a certain maturity date.  This innovation allows you 
to have much more control and eliminates cash flow volatility.  It 
acts as an additional collateral enhancement to portfolios as well as 
a mitigation of the ability for repayment.  If you did not have the 
bond your annual return could be significantly reduced if the 
insured lives beyond the anticipated date of death as projected by 
the life expectancy report.  If the insured should outlive the 
policy’s expiration date, the bond will pay you the entire death 
benefit.  

 

75. A&O sales agents repeated the false and misleading information received from 

A&O (and originally generated by PCI) in marketing these bonded life settlements to investors.  

One Minnesota-based sales agent received a D&B report (with the false 5A-S rating) and a 

sample bond reflecting PCI’s supposed reinsurance certifications.  After confirming the accuracy 

of the D&B rating with a PCI employee, the sales agent generated several different bonded life 

settlement marketing brochures that emphasized PCI’s D&B rating and its reinsurance.  The 

sales agent provided this information to prospective investors and ultimately convinced thirteen 

people to invest a total of approximately $3 million in the A&O offering.  In another instance, a 

North Carolina-based sales agent informed a customer that PCI had D&B’s “highest rating” and 

26 
 



was reinsured “by some of the biggest companies around,” including AIG and Swiss Re.  As a 

result, the customer invested $254,000 in the A&O offering.   

2. ASA’s  Repetition of PCI’s Misleading Representations 
 

76. As part of ASA’s due diligence, PCI provided ASA with similar documents to 

those that it provided to A&O:  pages from PCI’s website that discussed its D&B 5A-S rating; a 

copy a D&B report dated October 19, 2004 that was based on the “audited” financial statements; 

and a sample PCI bond that included similar reinsurance endorsements.  Additionally, in 

September 2007, two months before PCI issued its bond, Vargas caused PCI to provide ASA 

with an “audited” financial statement for PCI’s Fiscal Years 2006 and a 2007 D&B report that 

reflected the same 5A-S rating.   

77. ASA provided this false information to sales agents who, in turn, forwarded it to 

investors.  In one instance, a sales agent specifically used the PCI bond to sell the remaining 

investor slots in the ASA offering.  In December 2007, the sales agent convinced a Texas couple 

– who had previously declined to invest because a bonding company was not in place – to 

participate in the ASA offering by emphasizing PCI and its 5A-S rating, which he described as 

the “highest financial rating available” from D&B.   

78. In bonding the life insurance policy underlying ASA’s offering in late 2007, PCI 

and Vargas violated a cease-and-desist order issued by the Texas Department of Insurance in 

2006 that prohibited PCI from engaging in unauthorized insurance business in Texas.  PCI and 

Vargas similarly ignored a Texas State Securities Board’s cease-and-desist order against PCI in 

2008.  Rather than stop doing business in Texas, PCI instead authorized a Texas company to 

serve as its representative in the U.S. and asked potential Texas-based customers to use an 

address outside of Texas when conducting its PCI-related business.   

27 
 



D. Investors Traded As A Result Of PCI’s Misleading Representations 

79. PCI’s fraudulent representations induced investors to purchase life settlement 

investments.  Many investors around the country lost (or, over the next several years, stand to 

lose) money from such investments as a result of PCI’s representations.  Some of these investors 

were in the Eastern District of Virginia.  

E. Defendants’ Fraudulent Actions Are Continuing 

80. PCI’s potential obligations to its bondholders will increase dramatically in the 

years that lie immediately ahead.  PCI bonded approximately $67 million worth of life insurance 

policies that reached their life expectancy termination date in 2010.  It bonded more than $115 

million, $180 million and $168 million of life insurance policies that will reach their termination 

dates in 2011, 2012, and 2013, respectively.  As the investment amount reaching the life 

expectancy date increases, so does PCI’s exposure.   

81. Recently, PCI has been forced to use incoming premiums on a new life settlement 

offering to make partial payments on claims lodged against PCI bonds on investments in which 

the policyholder outlived his or her life expectancy.  For example, in April 2010, PCI used 

money from the Premium Reinsurance Reserve Account maintained by a U.S. escrow agent at 

TD Bank to make a partial payment under a settlement agreement that Vargas reached with the 

Trustee in the A&O bankruptcy case pending in federal bankruptcy court in Chicago.  Using new 

premiums to pay its bond obligations raises the continued specter that PCI lacks the financial 

wherewithal to meet its dramatically increasing obligations.   

82. While A&O and ASA are no longer engaged in life settlement offerings, upon 

information and belief, PCI is continuing to market its bonds in connection with ongoing bonded 

life settlement offerings by other issuers.  For example, in 2010, and as part of an effort to obtain 

28 
 



additional business, PCI and Vargas represented to life settlement issuers in the Netherlands that 

PCI maintained its supposed “bouquet” of reinsurance.  As part of these efforts, Vargas 

instructed Castillo to issue a letter certifying that PCI has made payments to purchase such 

reinsurance.  

CAUSES OF ACTION 
 

FIRST CLAIM 
(AS TO ALL DEFENDANTS) 

 
Violations of Section 10(b) of the Exchange Act and Rule 10-5 

83. Paragraphs 1 through 82 are realleged and incorporated by reference. 

84. Defendants, directly or indirectly, singly or in concert with others, in connection 

with the purchase and sale of securities, by use of the means and instrumentalities of interstate 

commerce and by use of the mails have:  (a) employed devices, schemes and artifices to defraud;  

(b) made untrue statements of material facts and omitted to state material facts necessary in order 

to make the statements made, in light of the circumstances under which they were made, not 

misleading; and  (c) engaged in acts, practices and courses of business which operate as a fraud 

and deceit upon purchasers, prospective purchasers and other persons. 

85. As a part of and in furtherance of their scheme, Defendants, directly and 

indirectly, prepared, disseminated or used contracts, written offering documents, promotional 

materials, investor and other correspondence, and oral presentations, which contained untrue 

statements of material facts and misrepresentations of material facts, and which omitted to state 

material facts necessary in order to make the statements made, in light of the circumstances 

under which they were made, not misleading. 

86. Defendants made the referenced misrepresentations and omissions knowingly or 

recklessly disregarding the truth. 

29 
 



87. For these reasons, Defendants have violated and, unless enjoined, will continue to 

violate Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Exchange Act Rule 10b-5 

[17 C.F.R. § 240.10b-5]. 

SECOND CLAIM 
(AS TO ALL DEFENDANTS) 

 
Violations of Section 17(a) of the Securities Act 

88. Paragraphs 1 through 82 are realleged and incorporated by reference. 

89. Defendants, directly or indirectly, singly or in concert with others, in the offer and 

sale of securities, by use of the means and instruments of transportation and communication in 

interstate commerce and by use of the mails, have: (a) employed devices, schemes or artifices to 

defraud; (b) obtained money or property by means of untrue statements of material fact or 

omissions to state material facts necessary in order to make the statements made, in light of the 

circumstances under which they were made, not misleading; and (c) engaged in transactions, 

practices or courses of business which operate or would operate as a fraud or deceit. 

90. As part of and in furtherance of this scheme, Defendants, directly and indirectly, 

prepared, disseminated or used contracts, written offering documents, promotional materials, 

investor and other correspondence, and oral presentations, which contained untrue statements of 

material fact and which omitted to state material facts necessary in order to make the statements 

made, in light of the circumstances under which they were made, not misleading. 

91. Defendants made the referenced misrepresentations and omissions knowingly, 

recklessly or negligently disregarding the truth. 

92. For these reasons, Defendants have violated, and unless enjoined, will continue to 

violate Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)]. 

THIRD CLAIM 

30 
 



(AS TO CASTILLO ONLY) 
 

Aiding and Abetting Violations of Exchange Act Section 10(b) and Rule 10b-5 and 
Section 17(a) of the Securities Act  

 
93. Paragraphs 1 through 82 are realleged and incorporated by reference. 

94. If Castillo did not violate Exchange Act Section 10(b) and Rule 10b-5 and 

Securities Act Section 17(a), in the alternative, Castillo, knowingly or recklessly provided 

substantial assistance to defendants PCI and Vargas in connection with their violations of 

Exchange Act Section 10(b) and Rule 10b-5 and Securities Act Section 17(a). 

95. For these reasons, pursuant to Exchange Act Section 20(e) [15 U.S.C. § 78t(e)], 

Castillo aided and abetted and, unless enjoined, will continue to aid and abet violations of 

Exchange Act Section 10(b)  and Rule 10b-5  and Securities Act Section 17(a) . 

FOURTH CLAIM 
(AS TO RELIEF DEFENDANT DESARROLLOS COMERCIALES RONIM S.A) 

Constructive Trust 
 

96. Paragraphs 1 through 82 are realleged and incorporated by reference. 

97. Relief Defendant Desarrollos Comerciales Ronim, S.A. was and is PCI’s 

managing general agent.  Bondholder and investor premium payments for the PCI bonds were 

directed to, among other destinations, bank accounts that Desarrollos Comerciales Ronim 

maintained in its name in Costa Rica.  Where Desarrollos Comerciales Ronim opened and 

maintained accounts as PCI’s agent and received and held funds for PCI, those funds should be 

frozen and held in constructive trust for the benefit of the investor-victims. 

31 
 



PRAYER FOR RELIEF 

 WHEREFORE, the Commission respectfully requests that this Court grant the following 

relief: 

I. 

 Temporarily, preliminarily, and permanently enjoin Defendants from violating, or aiding 

and abetting violations of, Section 10(b) and Rule 10b-5 of the Exchange Act and Section 17(a) 

of the Securities Act.  

II. 

 Enter an Order immediately freezing the assets of Defendants and the Relief Defendant 

and directing that all financial or depository institutions comply with the Court’s Order.  

Furthermore, order that Defendants immediately repatriate any funds held at any bank or other 

financial institution not subject to the jurisdiction of the Court, and that they direct the deposit of 

such funds in identified accounts in the United States, pending conclusion of this matter. 

III. 

 Order that Defendants shall file with the Court and serve upon Plaintiff Commission and 

the Court, within 10 days of the issuance of this order or three days prior to a hearing on the 

Commission’s motion for a preliminary injunction, whichever comes first, an accounting, under 

oath, detailing all of their assets and all funds or other assets received from investors and from 

one another. 

IV. 

 Order that Defendants be restrained and enjoined from destroying, removing, mutilating, 

altering, concealing, or disposing of, in any manner, any of their books and records or documents 

32 
 



relating to the matters set forth in the Complaint, or the books and records and such documents of 

any entities under their control, until further order of the Court.  

V. 

 Order the appointment of a receiver for Defendants, for the benefit of investors, to 

marshal, conserve, protect, and hold funds and assets obtained by the Defendants and their 

agents, co-conspirators, and others involved in this scheme, wherever such assets may be found, 

or, with the approval of the Court, dispose of any wasting asset in accordance with the 

application and proposed order provided herewith. 

VI. 

 Order that the parties may commence discovery immediately, and that notice periods be 

shortened to permit the parties to require production of documents, and the taking of depositions 

on 72 hours’ notice. 

VII. 

 Order Defendants to disgorge an amount equal to the funds and benefits they obtained 

illegally as a result of the violations alleged herein, plus prejudgment interest on that amount. 

VIII. 

 Order civil penalties against Defendants pursuant to Section 20(d) of the Securities Act 

[15 U.S.C. § 77t(d)] and Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)] for their 

securities law violations. 

IX. 

 Order that Defendants immediately surrender their passports to the Clerk of this Court, to 

hold until further order of this Court. 

33 
 



34 
 

X. 

 Order such further relief as this Court may deem just and proper. 

Dated: January 19, 2011   Respectfully submitted, 
 
 
 _________________________________________ 

Robert P. McIntosh 
Office of the United States Attorney 
   Eastern District of Virginia 
600 E. Main Street, 18th Floor 
Richmond, VA 23219 
Tel.: 804-819-5400 
Email: [email protected] 
 
Local Counsel for Plaintiff 
 
-and- 
 
Charles J. Felker 
Suzanne J. Romajas (pro hac admission pending) 
Michael S. Fuchs 
Mika M. Donlon 
SECURITIES AND EXCHANGE COMMISSION 
100 F Street, NE 
Washington, DC 20549-4030 
Tel: 202-551-4473 (Romajas) 
Email: [email protected] 
 
Counsel for Plaintiff 

 
 
 

mailto:[email protected]
mailto:[email protected]