Sunday 15 January 2012

The Ciaran Maguire Group & PCI Underwriters

There are updates to this post in consequent postings, please read them all to get context for this posting. Basically Ciaran claims he has had nothing to do with this company for some time. We wrote to him some time ago about PCI and received no response, so created this post, and very quickly received a rebuttal from Ciaran claiming that he had immediately responded to our initial emails. 

From an email received from Ciaran Maguire back in April 2010:

"I think it is very important to note that I have signed a contract with a new bond company Provident Capital Indemnity (PCI) to underwrite the Palm View Resort and I am very proud to say that the Palm View Resort is the ONLY development in the world to have the Guaranteed Rental fully bonded with the financial market place in London hailing the brokering of the deal as a “pioneering product that will change the overseas property market for good”. I understand that the previous bond company we entered into a contract with has now gone into administration that is why I personally outlayed in excess of €100,000 on carrying out a full financial report on PCI via Dun and Bradstreet, a market leader in carrying out financial reports on Finance and Insurance houses and the report shows that PCI have assets in excess 250,000,000 USD and deem to be very secure as an underwriter for Palm View Resort."

It appears Ciaran should also look for his money back from Dun and Bradstreet (who typically charge about  $150 for a credit report - and if reports from the SEC are anything to go by they don't really put a lot of effort into compiling them). This new bond underwriter doesn't appear to have much in the way of real assets and isn't thought of too highly by the US Government's Securities and Exchange Commission (SEC) - See Here (you'll need Adobe Reader to read the PDF document).

The case against the Defendant Jorge Castillo (PCI Auditor) was successful, he is to be sentenced on May 22nd, 2012. The case against the Defendant Minor Vargas Calvo (President and owner of PCI) has yet to be executed, it is due to start on February 12th, 2012. See the report from the Wall Street Journal here - DOJ: Purported Auditor of Provident Capital Pleads Guilty in Scheme

This court case was brought by the SEC back in January 2011. You'll get the gist of the accusations and the very specific wrongdoing the SEC felt was undertaken by PCI from the PDF document above. 

We've included some highlights below in case you don't fancy trawling through all 34 pages of the document, and who could blame you?

4. ...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 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."

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. ... PCI continues to make false and misleading statements and issue bonds on new life settlement offerings in Europe and, upon information and belief, Vargas is contemplating changing PCI’s name to better enable the fraud to continue undetected. 

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.

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.

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.

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.

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 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.

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.
70. ... PCI did not and does not have reinsurance coverage or any other contractual relationship with the reinsurers listed in its sample bond.  

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

78. ... 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.  

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."

In other words, the SEC is accusing PCI of running a Ponzi Scheme. Sound familiar?  

If you look closely at the picture accompanying this piece, you'll have pre-empted the news that the Ciaran Maguire Group has now started marketing a development in St. Lucia - - which will come as a bit of a shock to those who have invested in, and to date not received, a property in Cape Verde. 

More on this anon. 

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