Exclusive: On the run, U.S. financier finds Spanish refuge

He’s wanted for contempt of court in Arizona. He is under investigation by Italian police over his connection with an international bond scandal exposed by Reuters in August and totaling at least $500 million. And he is named as a key player in one of the first criminal indictments following the collapse of Iceland’s economy.

But last week you could find David Spargo in a holiday resort on the Spanish island of Majorca. He’s a regular at La Batucada cocktail bar, where he might be drinking anything from a cocktail to a beer or whisky. Locals say he also enjoys playing on the 95-euro-a-round ($127) Alcanada golf course, which overlooks the sparkling Mediterranean.

Since he arrived in Majorca early this year he has even tried to issue more bonds, one source told Reuters.

Spargo’s case shows how tough it is for regulators and law enforcement agencies to track and punish alleged financial crimes across borders. Networks of ‘shell companies’ — paper-only firms with few real operations — make it hard enough to identify suspects. Even if regulators can identify them, they are often hard to bring to justice. Spargo may be of interest to officials in at least four jurisdictions around the world but police and civil guard officials on Majorca said they were unaware of the fraud investigation.

The 44-year old American is sought by U.S. Marshals for failing to repay $5.5 million to investors in Texas and Virginia who had bought bonds issued by his company. But because the charges against him are civil ones, the United States is not able to extradite him and the U.S. embassy in Madrid says they are not aware of Spargo’s presence in Spain. Iceland and Britain (whose top financial services regulator recently called $500 million of bonds Spargo issued in 2008 a “fraudulent instrument”) have also not tried to extradite him. A prosecutor in Italy declined to say whether authorities had tried to extradite anyone in connection with the case.

“There are likely to be hundreds of suspected white-collar criminals who have moved to other countries and are now living off the proceeds from their alleged crimes,” says Andrew Gordon, forensic services partner at accountants PricewaterhouseCoopers (PwC). Police in the City of London say more and more criminals are trying to hide their operations in different countries, using myriad bank accounts to siphon off the profits.

Spargo himself denies any fraud. “A lot of your information is extremely incorrect,” he told a Reuters reporter from the balcony of his second-floor apartment on November 28. “You’ll find out in the next three days.”

He did not elaborate.

DARTS TEAM

Spargo was CEO, director and major shareholder of Napis Inc., based on West Superstition Boulevard, Apache Junction in Arizona until it was dissolved last year. He arrived in Majorca in mid-January, according to a person familiar with the situation. That was just after a court in Arizona issued a warrant for his arrest on a contempt charge. Both Spargo and his company had failed to obey a 2009 court order to repay investors who had alleged they had been defrauded by other companies and their money used to buy the dubious Napis bonds.

In Majorca, police said a complaint for assault has been filed against Spargo and passed onto the court, but they would not elaborate.

Spargo’s white apartment block is a short walk from the beach in Puerto Pollensa, a district in the northeast corner of the island which is popular with British and German tourists. He can often be seen driving around in his Sahara edition green Wrangler Jeep. Locals say he spends much of his time on the golf course. According to the manager of La Batucada pub, who gave his name only as Rafa, Spargo comes in “almost every night.” He described the American as his “best customer,” saying Spargo is also a member of the pub’s darts team.

In the United States, at least one of Spargo’s controversial bond deals has made use of opaque entities and unlikely collateral — $10 billion of diesel from the Russian republic of Bashkortostan.

In connection with that scheme, detailed by Reuters in “The Bonds that turned to dust,” he is one of six people now under investigation by Italian police. Investigators are looking into $500 million in bonds issued by Spargo’s Nevada-incorporated company Asseterra in 2008.

The bonds were sold to hedge fund DD Growth Premium, run by Italian academic Alberto Micalizzi. The fund, run out of London but registered in the Cayman Islands, collapsed soon after the oil bonds deal was completed. Investors, who had thought they were buying stock, later discovered hundreds of millions of dollars of losses. Britain’s Serious Fraud Office launched a criminal investigation into Dynamic Decisions Capital Management, the hedge fund’s manager, in November 2009 but dropped it eight months later after deciding there wasn’t enough evidence to prosecute.

Last month, Italian police raided Micalizzi’s home and offices in Milan. Britain’s FSA, which has been investigating the oil-backed bonds, also said it had banned the fund’s compliance officer from “any significant influence function in regulated financial services.” The compliance officer could not be reached for comment. Micalizzi told Reuters the case against him is groundless and he considers reports about it unfounded and defamatory.

ICELAND CONNECTION

Since Reuters’ original story, another case involving Spargo has emerged. It concerns an alleged $700 million bond issued by Napis in 2006. Iceland’s National Police Commissioner alleges that a friend of Spargo’s, Viggo Thorisson, an Icelandic national who attended Arizona State University in Phoenix when Spargo was living in the city in the 1990s, drew up false documents that committed his own company to act as guarantor for the bond issue.

Among allegations in the case is that Thorisson attempted to use the documents to defraud the Bank of Scotland through a debt management firm called Midscot (UK). Midscot folded in 2008 after one of its employees, James Johnstone, failed to pass on cash taken from debt-stricken families to pay their creditors, according to the Sunday Mail newspaper.

A Central Scotland Police spokeswoman said police had investigated Midscot and interviewed Johnstone on behalf of Icelandic police.

Thorisson, who has also been a director of Asseterra, denies all the charges and declined to speak to Reuters. An Icelandic court started a hearing in the case this week. Thorisson is not able to leave Iceland because he is charged with a criminal act.

Matt Hershey, Supervisory Deputy U.S. Marshal in the District of Arizona for the U.S. Marshals Service, said the investigation of Spargo is active, but investigators know he is out of the country. Because the warrant for his arrest results from a civil, not criminal case, U.S. Marshals cannot hand the case to their International Investigations Branch and Spargo cannot be extradited from Spain.

Spargo seems settled on Majorca. Besides La Batucada, he drinks at Irish pub O’Hara’s and works out at nearby Calypso gym. “He always has young people around him,” said the person familiar with his situation. “He spends a lot of money and pays for everything.”

The source said Spargo is applying for a Spanish identification number and has been involved in a number of new projects including an aborted attempt to redevelop a local golf course by raising money through a bond issue. He has also talked about starting a microbrewery.

Neither plan has yet materialized.