ASSISTANT ATTORNEY GENERAL TONY WEST DISCUSSES PROTECTING INVESTORS FROM FRAUD

The following is an excerpt from the Department of Justice website:

December 21st, 2011 Posted by Tracy Russo
"The following post appears courtesy of Tony West, the Assistant Attorney General for the Justice Department’s Civil Division. 
Some crimes do not leave visible bruises or scars.  But they are no less painful.  I think about that every day when I hear how many hard-working, honest people have become victims of those who see the financial crisis as an opportunity to exploit hardship for profit.
One of those people was “Ana,” a single mother living in Florida who needed to work from home to care for her ailing daughter.  She thought she had finally found a solution when she learned of an opportunity to own an ATM in a profitable, high-traffic location.
All that was required was an upfront investment fee.

Hopeful, Ana signed on and invested her life savings.  But, the company never fulfilled its promise.  It was only after Ana had lost everything and was left saddled with debt that she discovered that the salespeople provided phony references and lied about the profits that would be earned with their ATMs.
As it ruined the lives of folks like Ana, this company raked in over $4 million in profits.
I’ve heard heartbreaking stories like this one all over the country.  That is why, as head of the Civil Division of the Department of Justice, I have worked hard to enhance our role in protecting consumers from these predators.  Our hard work has paid off: a nationwide effort by the Department’s Office of Consumer Protection Litigation, the Federal Trade Commission and state attorneys general has resulted in the conviction of over 150 defendants – including the two individuals behind the ATM scam – as well as court orders of over $100 million in criminal restitution for victims like Ana.

Still, prosecution of these criminals only gets us so far.  We are also working to educate consumers about business opportunity fraud and how they can avoid it.  Under federal law, a business opportunity seller is required to provide a list of former purchasers to prospective buyers – enabling them to talk to someone who invested previously and learn how the business really works.  So, if a seller offers a few named references instead of the full list, be wary.  In addition, we encourage consumers to ask for earnings’ claims in writing and ask the FTC or their state government whether there are unresolved complaints involving the business.
But we will never be able to truly fight these financial crimes if victims do not come forward and tell their stories.
And many victims still do not.  Consumers often feel responsible for their own fate and opt to suffer alone.  That is particularly tragic considering that there are hundreds of thousands of victims like them – who pursued opportunities not to get rich quick, but just to make a living.
This was not a violent crime, but her family suffered devastating losses just the same.  And, like many victims, Ana felt shame and embarrassment that she may have invited the crime somehow.  But, unlike many victims of financial fraud, she found the strength to come forward, tell her story, and seek help.
And by so doing, she prevented someone else from becoming a victim, too.
So, if you have been a victim, I hope you will take the first step.  Report the fraud and learn about resources for victims at www.StopFraud.gov, the website for the federal government’s Financial Fraud Enforcement Task Force.  File a complaint with the FTC at www.ftccomplaintassistant.gov or at 1-877-FTC-HELP.  Then contact your state attorney general to learn your rights and get help.  Because justice begins with you".

CPA PLEADS GUILTY TO PART IN $670 MILLION DOLLAR FRAUD

The following excerpt is from the Department of Justice website:

The following excerpt is from the Department of Justice website:

Monday, November 21, 2011
"WASHINGTON – A certified public accountant (CPA) and purported outside auditor for Provident Capital Indemnity Ltd. (PCI) pleaded guilty today for his role in a $670 million fraud scheme involving victims throughout the United States and abroad.

The guilty plea was announced today by U.S. Attorney for the Eastern District of Virginia Neil H. MacBride and Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division.

“Mr. Castillo used his position as a CPA to give PCI an air of legitimacy that provided their clients the peace of mind to invest millions,” said U.S. Attorney MacBride. “Auditors stand as a gatekeeper to fraud, and we are aggressively pursuing those who abuse their position to facilitate the fraud rather than take steps to put a stop to it. I want to commend the outstanding work of the Virginia Securities and Financial Fraud Task Force for detecting and disrupting this massive, ongoing international fraud before the scheme victimized even more investors.”

“Mr. Castillo played an integral role in a multi-million dollar fraud scheme that harmed investors throughout the United States and abroad,” said Assistant Attorney General Breuer. “Trading on his qualification as a CPA, he created false documents that concealed the true nature of PCI’s operations. We are determined to continue holding accountable those who commit financial fraud, and prey upon unsuspecting investors.”

Jorge Luis Castillo, 56, a resident of New Jersey, pleaded guilty before U.S. District Judge John A. Gibney in the Eastern District of Virginia to conspiring to commit mail and wire fraud, which carries a maximum penalty of 20 years in prison. Castillo is scheduled to be sentenced on May 22, 2012.

According to a statement of facts filed with Castillo’s plea agreement, PCI was an insurance and reinsurance company registered in the Commonwealth of Dominica and doing business in Costa Rica. PCI sold financial guarantee bonds to companies selling life settlements, or securities backed by life settlements, to investors. These bonds were marketed to PCI’s clients as a way to alleviate the risk of insured beneficiaries living beyond their life expectancy. The clients, in turn, typically explained to their investors that the financial guarantee bonds ensured that the investors would receive their expected return on investment irrespective of whether the insured on the underlying life settlement lived beyond his or her life expectancy.

Castillo admitted today that he conspired with Minor Vargas Calvo, 60, the president and majority owner of PCI, to prepare audited financial statements that falsely claimed that PCI had entered into reinsurance contracts with major reinsurance companies. These claims, which were supported by a letter from Castillo stating that he conducted an audit of PCI’s financial records, were used to assure PCI’s clients that the reinsurance companies were backstopping the majority of the risk that PCI had insured through its financial guarantee bonds.

Castillo admitted that he never performed an audit of PCI’s financial statements and that, in fact, he personally created the statements he claimed to be independently auditing. He also admitted that he and others at PCI knew that the company never actually entered into reinsurance contracts with any major companies. Castillo also admitted that he and other conspirators provided the false financial statements and fraudulent independent auditors’ report to Dun & Bradstreet (D&B), which D&B relied on in compiling its commercial reports on PCI and issuing its 5A rating of PCI’s financial strength.

From 2004 through 2010, PCI sold approximately $670 million of bonds to life settlement investment companies located in various countries, including the United States, the Netherlands, Germany and Canada. PCI’s clients, in turn, sold investment offerings backed by PCI’s bonds to thousands of investors around the world. Purchasers of PCI’s bonds were allegedly required to make up-front payments of six to 11 percent of the underlying settlement as “premium” payments to PCI before the company would issue the bonds.

Court records state that Castillo received approximately $84,000 from his work as the purported outside auditor of PCI from 2004 through 2010.

Vargas, a citizen and resident of Costa Rica, and PCI were charged in a superseding indictment on Oct. 5, 2011, with one count of conspiracy to commit mail and wire fraud, three counts of mail fraud and three counts of wire fraud. Vargas was also charged with three counts of money laundering. Vargas was arrested on Jan. 19, 2011, at the John F. Kennedy International Airport in New York, and has been incarcerated pending trial, scheduled to be held on Feb. 13, 2012. An indictment is a formal accusation of criminal conduct, not evidence. A defendant is presumed innocent unless and until convicted.

This continuing investigation is being conducted by the U.S. Postal Inspection Service, Internal Revenue Service and FBI, with assistance from the Virginia State Corporation Commission, the Texas State Securities Board and the New Jersey Bureau of Securities. This case is being prosecuted by Assistant U.S. Attorneys Michael S. Dry and Jessica Aber Brumberg of the Eastern District of Virginia and Trial Attorney Albert B. Stieglitz Jr. of the Fraud Section in the Justice Department’s Criminal Division.

The U.S. Securities and Exchange Commission (SEC) conducted a parallel investigation and in January 2011 filed a parallel civil enforcement action against PCI, Vargas and Castillo. The department thanks the SEC for its assistance in this matter.

The investigation has been coordinated by the Virginia Financial and Securities Fraud Task Force, an unprecedented partnership between criminal investigators and civil regulators to investigate and prosecute complex financial fraud cases in the nation and in Virginia specifically. The task force is an investigative arm of the President’s Financial Fraud Enforcement Task Force, an interagency national task force.

President Obama established the Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes."