New York Authorities Charge 36 With Insurance Fraud
New York authorities on Thursday arrested 36 people and charged them with participating in a car accident insurance fraud ring.
The arrests are the result of an 18-month joint investigation by the Federal Bureau of Investigation (FBI), the New York City Police, and the Manhattan US Attorney’s office. The defendants were charged with participating in a scheme to defraud private insurance companies of more than US$279 million between 2007 and 2012. The list of charges includes insurance fraud, racketeering and money laundering.
According to the US Attorney’s Office, the uncovered insurance scheme is the “largest single no-fault automobile insurance fraud ever charged. The case is the first of its kind to prosecute violations under the Racketeer Influenced and Corrupt Organizations (“RICO”) Act,” the US Attorney’s Office said in a statement.
Among the defendants are eight alleged members of an organized crime group, predominantly of Russian descent. Prosecutors say the organization was based in the neighborhood of Brighton Beach, Brooklyn, the locus New York’s Russian immigrant population. In addition, 10 licensed doctors and three lawyers were charged in the case.
Allegedly, the members of the organized crime group and their associates owned and controlled fraudulent medical clinics. These clinics were dubbed “No Fault Organization” by the authorities, as the scheme was set up to defraud private insurance companies under New York’s no-fault insurance law. The US Attorney’s Office called the insurance scheme the “largest single no-fault automobile insurance fraud ever charged.”
The New York State No-Fault Law requires every vehicle registered in the state to have no-fault automobile insurance. Under the law, drivers of registered and insured vehicle are able to obtain benefits of up to US$50,000 per person for injuries resulting from a car accident, regardless of whose fault the accident was. The No-Fault Law allows immediate payment for medical treatment, removing the need for claimants to file personal injury lawsuits in order to be reimbursed.
The law also allows patients to transfer their right to reimbursement from insurance companies to clinics that provide the medical treatment. Since only clinics belonging to licensed doctors are eligible for reimbursement under the No-Fault Law, true owners (“Clinic Controllers”) of the No-Fault fraudulent clinics paid licensed medical practitioners to pose as owners of the clinics. According to the indictment “the no-fault clinics were, in fact, medical fraud mills that routinely billed automobile insurance companies under the no-fault law for medical treatments that were either never provided and/or unnecessary.”
Manhattan U.S. Attorney Preet Bharara said that the scheme depended on corrupt doctors who “peddled their medical licenses like a corner fraudster might sell fake IDs, except those medical licenses allowed unlawful entry, not to a club or a bar, but to a multi-billion-dollar pool of insurance proceeds.”
The Clinic Controllers paid “runners” to recruit car accident passengers to receive medically unnecessary treatments from the No-Fault clinics. The runners were allegedly paid between US$2,000 and US$3,000 per recruited patient.
NYPD Commissioner Raymond W. Kelly explained that undercover officers posing as patients received “therapy, tests, and medical equipment they didn’t need,” just like thousands of other “patients.”
According to the prosecutors, the recruited patients were also referred to personal injury lawyers, who filed bogus lawsuits on their behalf to extract additional funds, beyond the US$50,000 available to each patient under the No-Fault Law. These lawyers in turn gave hefty bribes to the clinics for the referrals. The Controller Clinics allegedly received kickbacks from higher-level incorporated entities (“Modality Clinics”) for each referral.
The No-Fault Organization laundered money through corrupt check-cashing services and shell companies. The clinics would write checks for US$10,000 each – an amount low enough to avoid scrutiny and financial institution reporting requirements. The payee field would be left blank. According to the indictment, these check were “cashed through check-cashers who made the checks payable to shell companies they controlled in order to conceal the true nature and purpose of the checks.” The money then found its way back to the members of the No-Fault Organization. In effect, “the members and associates of the No-Fault Organization paid themselves through their own shell companies and then used the criminal proceeds to fund expensive vacations and to purchase luxury goods.”
At a conference following the arrests, FBI Assistant Director in Charge Janice K. Fedarcyk said: “The criminal enterprise, while it lasted, was obscenely profitable. The scheme not only unjustly enriched the defendants and defrauded insurance companies. Auto insurance fraud is also a crime that indirectly victimizes every driver in New York.”
The case is being prosecuted by the Organized Crime Unit of the Manhattan District Attorney’s Office.