Fraud Roundup

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101 indicted in Calif. insurance fraud sting

A two-year undercover sting operation by the Los Angeles County District Attorney’s office has resulted in 101 indictments, of which 88 have been arrested as of press time.

Following a tip from a confidential informant, an investigation was launched in Sept. 2004 involving suspected attorneys and legal office employees who were allegedly selling accident claim cases for referral fees and kickbacks from chiropractic clinics.

The informant allowed an undercover investigator to be planted in the informant’s chiropractic clinic to work as the office administrator, according to the Department of Insurance. As part of the so-called “capping” scheme, employees from 12 San Gabriel Valley law offices allegedly referred clients to the chiropractor clinic and then filed fraudulent documentation and padded the bills sent to insurance companies. Settlements were then distributed by the law offices to the client, the law office and the clinic. Prosecutors documented more than $500,000 in losses to insurance companies from just one clinic, the DOI stated.

In early January, prosecutors announced 13 Grand Jury indictments were returned naming 101 defendants charged with more than 200 counts of insurance fraud. Eighty-eight defendants have been arrested. Four are out of the country and 11 are in other states. A total of 325 police officers from 10 agencies assisted in the arrests.

Of the indictments, 13 are office administrators who allegedly worked as “cappers,” two are attorneys and 86 are insurance claimants.

“These people not only sought to rob California insurers and consumers of their money, but in their dishonesty, have struck at the trust we place in our medical and legal professionals every day,” said Insurance Commissioner Steve Poizner. “I’m happy to say that the conduct of those arrested is the exception, not the rule.”

More than 40 insurers assisted with the investigation.

Billings, Mont., man sentenced for fraud

A Billings, Mont., insurance agent who pleaded guilty to fraud was sentenced to three years in prison.

Michael D. Hutton, 59, was also ordered to pay $185,000 in restitution. U.S. District Judge Jack Shanstrom said Hutton could remain free until he is assigned to a prison.

Hutton pleaded guilty in September to wire fraud, mail fraud and money laundering for issuing construction bonds on behalf of two insurance companies and keeping the premiums. He cooperated with prosecutors.

Hutton was the principal of M.D. Hutton Insurance in Billings. As part of the wire fraud scheme, Hutton issued 38 performance bonds from May 1999 until May 2004 on behalf of St. Paul Mercury Insurance Co. and St. Paul Fire and Marine Co. to S.E. Inc. in Deaver, Wyo. SEI paid Hutton $160,152 for the bonds.

First Assistant U.S. Attorney Kurt Alme said Hutton kept the premiums paid by SEI and did not notify the St. Paul insurance companies he had issued the bonds.

In the mail fraud, Hutton submitted 28 premium financing agreements to Provident Financial Inc. from 2002 to 2004 for 12 customers to obtain loans purportedly to pay the customers’ insurance premiums.

Hutton forged the names of customers on the agreements and sent them to Provident, which would pay loan proceeds to Hutton or to the insurance company issuing the customers’ policies. When Provident provided loan proceeds to Hutton, he kept the money. When Provident provided the loan proceeds to the insurance company, Hutton kept some or all of the premiums paid to him by the customer. he used the loan proceeds and premiums to make payments on the Provident loans.

Hutton’s attorney, Jack Sands, said his client tried to help people, got into financial trouble and began cutting corners. Sands asked for a probationary sentence, saying Hutton would be better able to pay restitution.

Alme called for a prison term in the low end of the sentencing range, saying that while Hutton cooperated with authorities, Congress considers white-collar crimes serious and punishable with prison time.

N.M. agent sentenced for embezzlement

An Espanola, N.M., insurance agent accused of bilking clients out of thousands of dollars has been put on probation for three years and ordered to perform 300 hours of community service.

Dennis O’Brien pleaded no contest to charges of embezzlement, interfering with an examiner and diversion from a fiduciary fund.

He had been accused of siphoning money from trust funds and spending money earmarked for personal insurance policies. He was accused of pocketing sums ranging from $110 to $3,100 from premium trust funds, which are escrow-like accounts in which an agent deposits clients’ premiums for removal by an insurance company.

As part of a plea agreement, O’Brien already has repaid $5,111 to his victims.

He also has voluntarily given up his insurance license for five years.

“Whether you ran a sloppy ship, were in over your head, or whether it was dishonesty, clearly this matter was mishandled,” state District Judge Michael Vigil said.

O’Brien could face 8.5 years in prison if he does not meet the terms of his probation.

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