Costa Rican Banks Caught Up In Pyramid Scheme Investigation

by Mike Godfrey, Tax-news.com, Washington

17 May 2001

Two Costa Rican private banks have become embroiled in a US Securities and Exchange Commission (SEC) investigation into a scheme to swindle around US$13.5 million from nearly a thousand US investors. The whole affair centres upon Costa Rican financial company Elfindepan SA, whose former president, Tracy Calvin Dunlap Jr, has recently been placed behind bars in North Carolina for contempt of court, having refused to obey court orders requiring him and various collaborators to produce documents and account for and repatriate investor funds related to their allegedly fraudulent investment schemes.

It was in mid-August 2000 that the SEC filed a fraud case in the United States District Court for the Middle District of North Carolina against Elfindepan, Southern Financial Group, Tracy Calvin Dunlap Jr and Barry Lowe. The SEC's complaint alleged that from as early as March 1999, the defendants defrauded investors nationwide in an apparent Ponzi or pyramid scheme in connection with the unregistered offer and sale of the securities of Elfindepan, a supposed Costa Rican financial company with offices in Greensboro, North Carolina. Dunlap et al allegedly raised at least $13.5 million from the investing public in at least nine states.

Among other things, say the SEC, defendants promised investors highly favorable returns on investments (as much as 40-50 per cent per month), and falsely stated that the investments were secure, including false claims that Elfindepan investments were associated with the International Monetary Fund and the World Bank. Investors were told that Elfindepan had been in business for 23 years, when in fact the company was less than a year and a half old.

The SEC now seems to be making some headway with its investigation. Costa Rican publication the Tico Times reported this week that private bank Bantec has frozen an account set up by Elfindepan through which it allegedly offered an anonymous debit card service. Adrián Zúñiga, head of the bank’s Credit Card Department, told the Tico Times that the bank froze the account last month at the request of the SEC. It is not known what will happen to the frozen funds, but apprently Elfindepan’s US attorney has not ruled out a lawsuit against Bantec for unlawful retention of funds.

Local investors explained to The Tico Times that they were offered Elfindepan’s debit-card service when they invested in local high-yield investment company Savings Unlimited, controlled by US citizen Luis Milanés. According to Milanes, his company was taken in by Elfindepan, just as investors were. He was quoted as saying: 'For committing the sin of recommending someone we thought would be of great benefit to our clients, we are completely willing to reimburse our investors on the spot for their funds currently frozen in the Elfindepan account – as long as they have documents to prove how much money they are owed,' he said.

The SEC has confirmed that another private Costa Rican bank, Banco Elca, has also frozen funds linked to Elfindepan-related companies. Dunlap remains in prison until he complies with the requests of the SEC.

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