Here are some reports of convictions for insurance fraud from the soon to be published Zalma''s Insurance Fraud Letter:
Deputy Insurance Superintendent Sentenced to Four Years for Fraud -- Insurance fraud is not always committed by those who purchase insurance and seek payment for a fraudulent claim. Insurance fraud is also committed by those given the public trust to protect the public from insurers. Because of the power of the state and the perceived unlimited wealth of insurers, the temptation to draw funds to a public official is always a danger.
In the case of Joe Ruiz, and the Superintendent he served, fraud resulted for what they perceived was a good cause, getting money for charity. Joe Ruiz, a former deputy insurance superintendent in New Mexico, was sentenced to four years in prison and ordered to pay $105,000 in restitution and fees for his role in a scheme to reduce regulatory fines against insurers in exchange for charitable contributions. In January, a federal jury convicted Ruiz of 30 counts, including mail fraud, wire fraud, corrupt solicitation by an agent of an organization, and Hobbs Act extortion in a plan to benefit Con Alma Health Foundation, a nonprofit whose president was then-New Mexico Insurance Commissioner Eric Serna. Ruiz's actions also benefited the Southwestern Arts Institute, a private nonprofit charity that began as a children's choir.
According to federal prosecutors, Ruiz's typical modus operandi was to allege that an insurance company used adjusters not licensed in New Mexico to process New Mexico insurance claims. Ruiz would also allege that a company itself was improperly licensed or registered in New Mexico. Ruiz would often initiate his contact with an insurance company by informing the company he believed either the company or some of its employees were improperly licensed or registered in New Mexico.
In one case cited by federal prosecutors, in September 2003, Ruiz advised a representative of Ohio Casualty Group via e-mail that it faced a $400,000 fine and asked the representative to call him to discuss alternatives to the fine. In a meeting, Ruiz offered the option of paying $30,000 to Con Alma and $5,000 to SAI in lieu of the fine. The company declined and negotiated for a $25,000 fine and a $15,000 suspended penalty.
In another case, in October 2002, Ruiz signed a faxed letter to Crawford & Company Risk Sciences Group Inc. saying the company faced a $117,000 fine for an unlicensed adjuster issue and a claims issue. After Crawford sent a $30,000 check to Con Alma, Ruiz informed the company that the matter was closed.
9-Years for W.C. Fraud -- Although insurance fraud seldom results in a major sentence when it is joined with the often simultaneous crime of tax fraud, things happen.
Daniel W. McElroy, a North Dartmouth, Massachusetts man was sentenced to nine years in prison and ordered to pay $12.1 million in restitution for his role in what is being called the state’s largest-ever “cash wage” scheme aimed at avoiding tax and workers-compensation payments. McElroy was convicted along with his wife last February on multiple counts of fraud and providing false payroll tax returns will also have to serve three years of supervised release when let out of the federal prison, according to U.S. Attorney Michael Sullivan’s office. McElroy’s wife, Aimee J. King McElroy, faces sentencing this September.
The convicted couple, who ran various temporary-employment agencies, was accused of paying employees more than $40 million in cold hard cash from the early 1990s through June 2001. The couple’s various staffing agencies provided hundreds of workers to factories and food-processing firms across eastern Massachusetts, especially at fish-processing plants in New Bedford. The all-cash transactions were meant to avoid tax and workers compensation payments. The IRS lost about $10 million in tax revenue and insurance companies lost about $7 million in workers compensation premium payments.
The Insurance Fraud Bureau of Massachusetts aided in the investigation of the McElroys’ schemes. It appears prosecutors across the country are learning from the prosecutor of the year, Al McKenzie (See ZIFL, 07-15-08).
Insurance Crime In South Africa -- Although I seldom report on arrests, this scheme requires more attention. Blog readers will remember the “Black Widows” who insured homeless men and then murdered them for life insurance proceeds. In Durban South Africa, three people were accused of a more extensive, yet similar, crime. They insured a string of prostitutes and homeless people and then used death certificates in an elaborate insurance scam.
Durban police have filed 21 murder charges, the earliest dating back to 2003. Two women and a man – Maryanne Tholile Dimba, 38, Brenda Mdluli, 42, and Sibusiso Buthelezi, 23 – have already appeared in court and pleaded not guilty. Dimba, who police believe masterminded the scheme, was arrested in Johannesburg in April, and the other two in Durban in February.
According to police, the scheme involved opening bank accounts for so-called family members using fraudulent identity documents (ID). The organizers then allegedly took out funeral and insurance policies in the names on the fake accounts, naming themselves as beneficiaries. After a few months of policy payments, a homeless person or prostitute would be “picked up” and lured to the criminals’ vehicles, make them drunk until they pass out and remove anything which could identify them. They were then killed and disfigured so badly they were unrecognizable. Police also report that some of the “dead” people have been traced and are still very much alive.