NYSID REPORT P/C FRAUD

The NYSID together with other State and Federal agencies have stepped up the fight against fraud. The Annual Report of the Superintendent of Insurance on the operations of the Frauds Bureau and an assessment of the insurance industry’s anti-fraud efforts for 2010, which reveals an aggressive, even creative approach…and good options.

A total of 668 arrests for insurance fraud and related crimes and 449 criminal convictions, with $6.6 million in courtordered restitution obtained by prosecutors handling Frauds Bureau cases are among the highlights. The Medicare Fraud Strike Force, led to the arrest of a surgeon on charges that he overbilled Medicare, Medicaid and private insurance carriers by $3.5 million.

Other highlights include:

• A total of 1,236 new cases were opened for investigation in 2010.

• Court-ordered restitution totaled $6.6 million during the past year as a result of Frauds Bureau criminal investigations, up by more than 29 percent over the total for 2009.

• Upstate Frauds Bureau investigators were part of a group that received the Arson Team of the Year Award for the successful investigation and prosecution of a man convicted of setting a fire at a home he owned in which a tenant died.

• Arrests for the Bureau’s Auto Unit reached 252 at year-end 2010, up from 219 in the prior year, an increase of 15 percent.

• The Bureau’s Medical Unit recorded 159 arrests during 2010.

• An investigation into illegal activities at Oriska Insurance Company concluded in May 2010 with the sentencing of three defendants. As part of the resolution, more than $860,000 was forfeited to the U.S. government. The Frauds Bureau received $346,000 of the forfeiture as a full partner with the FBI in the investigation.

Multi-Agency Investigations

The Bureau continued to conduct successful multi-agency investigations during 2010. Several of these joint investigations are summarized below:

Jeffrey Alnutt, who was convicted on 5/10/10 of charges that he set a fire in 2007 at a home he owned in which a tenant died, was sentenced on 8/19/10 for those charges. Alnutt received a sentence of 25 years to life on a murder conviction; 5-to-15 years on second-degree manslaughter; 25 years on second-degree arson; 5-to-15 years on third-degree arson; and time served on second- degree reckless endangerment. He had previously been convicted of setting fire to another home he owned in 2004 and is serving 5-to-15 years in that case. All the sentences are to be served concurrently. Alnutt’s daughter and son-in-law also got jail time for their part in the 2004 scheme. An investigation conducted by the Frauds Bureau, the Fulton County DA’s Office, the Gloversville Police and Fire Departments, the State Police and the State Office of Fire Prevention and Control resulted in successful conclusions in these cases. (See Section IV. D for information about the Arson Team of the Year Award presented for the investigation of this case.)

The Frauds Bureau and the Suffolk County DA’s Office conducted an investigation that led to the arrest of five defendants charged with 300 thefts of luxury auto wheel rims and tires from cars parked in residential driveways and auto dealership lots across Suffolk County. Investigators executed 11 search warrants and recovered 65 rims. The crew members divided the stolen goods among themselves for resale. The cost of the thefts and damage to the affected businesses and vehicles is estimated at more than $250,000. On 3/8/10, the leader of the ring and four other defendants were re-arrested and arraigned on weapons charges. Between June 2009 and January 2010, they sold 15 illegally possessed guns to undercover detectives. A subsequent investigation determined two of the guns had been used in the commission of felonies.

An investigation by the Medicare Fraud Strike Force, of which the Frauds Bureau is a member, led to the arrest of a surgeon on charges that from 2/09 to 1/10, he overbilled Medicare, Medicaid and five private insurance carriers by $3.5 million. On 9/22/10, investigators executed search warrants on the doctor’s office at the same time he was being arrested and bank records were seized. The Bureau also teamed up with the NYPD’s Fraudulent Accident Investigation Squad and Auto Crime Division in the investigation of many no-fault and other auto-related fraud cases, and with the Workers’ Compensation Board’s Office of the Fraud Inspector General and the State Insurance Fund on cases involving workers’ compensation fraud.

Additionally, Arson Unit investigators worked closely with the Bureau of Alcohol, Tobacco, Firearms and Explosives, the FDNY’s Bureau of Fire Investigations and the NYPD’s Arson Explosion Squad. The Frauds Bureau also acts as a liaison with the New York State Office of Fire Prevention and Control, as well as local arson units and fire departments throughout the State.

Moreover, DA’s Offices, the New York State Attorney General’s Office, the U.S. Attorney’s Offices, the New York State DMV, the U.S. Postal Inspection Service and the FBI New York Health Care Fraud Task, as well as local police departments and sheriff ’s offices across the State, are partners in many Frauds Bureau investigations of all types of insurance fraud.

Working Groups Participation

The Frauds Bureau is an active participant in numerous task forces and working groups designed to foster cooperation and collaboration among the many agencies involved in fighting insurance fraud. Participation provides the opportunity for joint investigations, information sharing, networking and honing investigative skills. Among the groups of which the Bureau is a member are the following:

Western New York Health Care Fraud Task Force

Central New York Health Care Fraud Working Group

Monroe County Auto Crime Task Force

FBI/U.S. Attorney Health Care Fraud Medicare Fraud Strike Force

The Medicare Fraud Strike Force supplements the health care fraud enforcement activities of the U.S. Attorneys’ Offices by targeting chronic fraud, as well as emerging or migrating schemes perpetrated by criminals operating as health care providers or suppliers. In addition to the Frauds Bureau, Strike Force members include the Department of Justice Criminal Division’s Fraud Section, law enforcement partners in the Department of Health and Human Services (HHS), and state and local law enforcement agencies.

The Department of Justice announced on 9/22/10 that from the inception of operations in March 2007, the Strike Force has obtained indictments of more than 810 individuals and organizations that falsely billed the Medicare program for more than $1.85 billion. Moreover, the HHS Centers for Medicare & Medicaid Services is working together with its Office of the Inspector General to take steps to increase accountability and decrease the presence of fraudulent providers. (Several investigations conducted by the Medicare Fraud Strike Force are summarized in Section IV. A of this Report.)

The Bureau

The Frauds Bureau, established by an act of the Legislature in 1981 as a law enforcement agency within the New York State Insurance Department, focuses upon detection and investigation of insurance fraud and the referral for prosecution of persons or groups that commit acts of insurance fraud. The Bureau is headquartered in New York City, with six additional offices across the State: Mineola, Albany, Syracuse, Oneonta, Rochester and Buffalo. The Director of the Bureau is responsible for all of the Bureau’s operations, with the assistance of the Deputy Director. In addition, the Bureau’s Assistant Director of Research reports to the Director and the Deputy Director.

Bureau staff consists of 16 Senior Investigators and 18 Investigators who staff the Bureau’s specialized units: Major Case, Arson, General, Auto, Workers’ Compensation, Medical, No-Fault, Mortgage and Title (established in 2009) and Upstate. Each Unit is supervised by a Deputy Chief Investigator. General oversight of the investigative staff is the responsibility of the Chief Investigator with the assistance of two Assistant Chief Investigators.

A Counsel and an Assistant Counsel are responsible for all legal matters as they relate to fraud investigations. In addition, the Bureau has a Manager of Information Technology Services who coordinates the activities of the Department’s Mobile Command Center.

The Bureau’s Training Officer provides in-service training for Bureau staff and conducts training for law enforcement, insurance industry and community groups. (The Bureau’s Director, Deputy Director and members of the investigative staff also provide training to these groups throughout the year.) The Training Officer reports to the Chief Investigator.

In addition, the Bureau has a unit that includes a Senior Insurance Examiner and an Insurance Examiner who report to a Principal Insurance Examiner. The examiner staff are responsible for insurer compliance with Article 4 of the New York Insurance Law and Department Regulation 95. The examiner staff may also perform market conduct examinations of insurer Special Investigations Units. The Bureau also has one support staff member who reports to the Secretary to the Director.

Investigations

The Frauds Bureau received 24,161 reports of suspected fraud in 2010, versus 24,920 reports received the year before. Of the 2010 total, the vast majority – 23,409 – were received from licensees required to submit such reports to the Department and 752 were received from other sources, such as consumers and anonymous tips. A total of 1,236 new cases were opened for investigation during the past year. Investigations also continued in numerous cases opened in prior years.

During 2010, the Bureau referred 412 cases to prosecutorial agencies for criminal prosecution.

Arrests

Frauds Bureau investigations led to 668 arrests for insurance fraud and related crimes during the past year. In one case, a former employee of an insurance agency that wrote policies for National Income Life Insurance Company received a 1099 form for commissions he purportedly received based on policies that were written after he left the agency. He reported the matter to the Nassau County Police Department who notified the Frauds Bureau and an investigation was initiated. Evidence indicated that five agents were involved in a scheme that used identity theft, falsifying business records and forgery to establish fake insurance policies, earning commissions and guaranteed bonuses based on selling those policies. The five defendants were arrested on 5/13/10 and charged with using the company-issued agent code of the former employee to write the policies and forging his signature to cash the commission checks.

In another case resulting in an arrest in 2010, a Norwich, NY, property owner failed to obtain workers’ compensation insurance coverage for an employee who managed several of his apartment buildings. The employee was raped and murdered inside an apartment in one of the buildings in 2007. The tenant of that apartment was sentenced to life in prison for the crime. Authorities learned of the defendant’s failure to secure the coverage when the employee’s estate filed a death benefit claim with the Workers’ Compensation Board. The defendant reimbursed the Board $50,000 that it had paid the employee’s estate, $5,000 in funeral expenses and another $6,000 in penalties. He also has an outstanding $30,000 penalty for operating without insurance in 2010. He is disputing that penalty, claiming he has no employees.

Civil Enforcement, Restitution and Forfeitures

Section 403 of the New York Insurance Law authorizes the Insurance Department to levy civil penalties of up to $5,000 plus the amount of the claim on individuals who commit fraudulent insurance acts. Under the provisions of Section 2133 of the New York Insurance Law, the Department is also permitted to levy a civil fine of up to $1,000 for possession of a fraudulent automobile insurance identification card and up to $5,000 for each additional card possessed. The Frauds Bureau commenced 31 civil fine proceedings in 2010. Of those, 24 were settled by stipulation and 7 went to hearings. Fraudulent homeowners, workers’ compensation and disability claims were among the types of civil fine cases in 2010, in addition to fraudulent auto theft and vehicle arson. As a result of the Bureau’s civil enforcement activities, $370,405 in penalties was imposed during 2010. Court-ordered restitution totaled $6.6 million during the past year as a result of Frauds Bureau criminal investigations, up by more than 29 percent over the total for 2009. Moreover, insurers saw savings of $9.3 million in connection with fraudulent claims investigated by the Bureau versus $4.0 million the year before, or more than twice the 2009 total and the highest savings total since 2004.

Fraud Prevention Plans

Section 409(a) of the New York Insurance Law (NYIL) and Department Regulation 95 require all insurers writing automobile, workers’ compensation and accident and health insurance that write at least 3,000 policies annually to submit to the Department a Fraud Prevention Plan (Plan) that includes establishing a Special Investigations Unit (SIU) separate from claims and underwriting. The SIU is responsible for investigating cases of suspected fraud and for implementation of the fraud prevention and reduction activities. Affiliated insurers writing the same lines of business may submit one Fraud Prevention Plan covering the entire group of insurers. Additionally, some insurance carriers submit multiple separate Plans which address different products. At yearend 2010, there were 137 approved Plans on file. A complete list of insurer or group Plans on file as of 12/31/10 appears in the Appendices to this Report.

Insurers submitted 25 new or revised Fraud Prevention Plans to the Frauds Bureau in 2010, covering 58 insurers. Plans submitted by two newly licensed life settlement providers were approved during 2010. Fraud Prevention Plans are required to be submitted with each life settlement provider’s application for licensing. During the past year, 40 life settlement providers submitted Fraud Prevention Plans to the Department with their license applications.

Public Awareness Programs

Regulation 95 and Section 409(c)(5) of the NYIL require that insurers develop a public awareness program focused on the cost and frequency of insurance fraud and the methods by which the public can assist in its prevention. The programs must be geared to reach a wider audience than an insurer’s policyholders and applicants. In an effort to achieve that goal, the New York Alliance Against Insurance Fraud (NYAAIF), a coalition of insurers, carries out advertising campaigns using newspapers, radio and television to target insurance consumers. NYAAIF members included 88 New York-licensed insurers or insurer groups with Fraud Prevention Plans on file. An additional 14 insurers that were not required to file Plans with the Department also participated in the NYAAIF’s public awareness program. During the past year, 26 health plans or groups of affiliated health plans with filed Fraud Prevention Plans participated in the National Health Care Anti-Fraud Association’s public awareness program which carries out campaigns using newspapers and radio advertising. Moreover, several individual insurers have ongoing programs to heighten awareness and reduce public tolerance for insurance fraud. As a result, these anti-fraud messages reach millions of New Yorkers during the course of the year.

The Life Insurance Settlement Association, an organization representing life settlement providers, has developed a public awareness program in which licensed life settlement providers may participate.

Major Cases 2010

The Frauds Bureau was involved in a number of multi-agency investigations during 2010. These operations, in addition to the day-to-day investigations conducted by Frauds Bureau investigators, contributed to the total number of arrests for the year. Some of these cases are summarized below. Sentenced In Title Insurance Fraud Case

• On 1/27/10, Joseph DeVito and his wife, Mary Ann Palladino-DeVito, were sentenced to 1 2/3-to-5 years in prison. They were arrested on 7/1/09 and charged with stealing more than $1 million from clients of the title insurance agency they operated. They accepted payments for mortgage fees, mortgage taxes, customer fees, real property filing fees and escrow account funds and misappropriated the funds for their own purposes. They were also charged with failing to pay New York State personal income taxes from 2002 through 2004. On 1/19/10, they had pleaded guilty to grand larceny in the 2nd degree and allocuted to failure to pay income taxes for 2002, 2003 and 2004. Misclassified

• An investigation by the Frauds Bureau, the Queens DA’s Office, the DMV’s Office of Fraud Investigation and the New York Auto Insurance Plan resulted in the 1/20/10 arrest of a licensed insurance broker who worked out of his home on Long Island. According to the charges, he and another person not yet apprehended conspired to file fraudulent paperwork with several insurance companies. The defendant was accused of intentionally classifying 21 commuter vans, known as dollar vans, as vanpools. Vanpools cost thousands of dollars less to insure than dollar vans. As a result, he allegedly defrauded the insurers out of more than $150,000 in owed premiums. Black Market Purchase

• A Columbia County woman – who admitted buying a Social Security number on the black market to create a false identity when she entered the U.S. from Mexico more than a decade ago – was arrested on 1/6/10 and charged with fraudulently collecting more than $12,000 in workers’ compensation benefits. Following an injury she sustained while working as a laborer in 2001, the defendant began collecting benefits and continued to accept the benefits even after gaining employment with a medical clinic as a driver and interpreter for Spanish-speaking immigrants traveling to medical appointments. She worked at this job using an alias and the stolen Social Security number which belonged to a deceased person. An investigation was initiated after the State Insurance Fund conducted a routine check and discovered she was working. The Frauds Bureau, the State Fund and the Workers’ Compensation Board’s Office of the Fraud Inspector General pooled resources in the investigation. Expired Agent Steals Premiums

• Complaints made by two property owners prompted an investigation by the Insurance Department’s Frauds and Consumer Services Bureaus that led to the arrest on 2/8/10 of a former licensed insurance agent who was accused of stealing $15,400 in premiums. The defendant allegedly collected premiums from property owners in 2008 and 2009 but failed to remit them to an insurer. The policies were subsequently cancelled. One of the property owners lost $25,000 as a result of damage that occurred to the roof of a commercial structure that he had paid the agent to insure. The agent’s license to sell insurance expired in 2008 when he failed to renew it. Nonexistent Coverage

• On 2/4/10, a Suffolk County business owner was arrested for allegedly stealing $50,000 from his employees. The money was purportedly for the purchase of workers’ compensation insurance. However, an investigation by the Frauds Bureau and the Workers’ Compensation Board’s Office of the Fraud Inspector General uncovered evidence that the money was never turned over to an insurer and no coverage for the employees existed. Rim Reapers

• Following a seven-month investigation conducted by the Frauds Bureau and the Suffolk County DA’s Office, five defendants were arrested on 2/3/10 and charged with 300 thefts of luxury auto wheel rims and tires from cars parked in residential driveways and auto dealership lots across Suffolk County. Investigators executed 11 search warrants and recovered 65 rims. The crew members would allegedly steal a van and strip it of its seats to make room for the rims and wheels they had targeted for the night’s activities. They divided the stolen goods among themselves for resale. The cost of the thefts and damage to the affected businesses and vehicles is estimated at more than $250,000. On 3/8/10, the leader of the ring and four other defendants were re-arrested and arraigned on weapons charges. Between June 2009 and January 2010, they sold 15 illegally possessed guns to undercover detectives. A subsequent investigation determined two of the guns had been used in the commission of felonies. Sentenced

• Eagle River Inc., a Colonie-based trucking company that pleaded guilty on 2/17/10 to underreporting its payroll by $2.2 million over a three-year period to avoid paying adequate workers’ compensation premiums, was sentenced on 3/5/10 to make $315,600 in restitution to the State Insurance Fund. The company has already paid $150,000 in restitution and has agreed to pay the balance over the next three years. The discrepancy was discovered during an audit of the company’s records by investigators from the Frauds Bureau and the State Fund. Identity Theft

• Following a back injury incurred while employed as a housekeeper at a senior citizens’ residence, a Kingston woman began collecting workers’ compensation benefits. However, she accepted the benefits over a two-year period while continuing to work at what had been her second job at a fast food restaurant. She testified at a workers’ compensation hearing in 2008 that she was no longer working. However, some time after the hearing, her former employer at the senior citizens residence noticed her working in a fast food restaurant in the area where, investigators discovered, she had been working for two years using the name of a distant relative, as well as a fictitious address and Social Security number. As a result of the fraud, she collected $34,900 in benefits to which she was not entitled. The Frauds Bureau pooled resources with the Town of Ulster Police Department in the investigation that led to her arrest on 3/24/10.  Owner Burns Landmark

• An investigation by the Frauds Bureau, the State Police and the State Office of Fire Prevention and Control led to the 3/11/10 arrest of the owner of a Cortland County landmark hotel and restaurant for allegedly setting fire to the property in the early morning hours of 8/28/07. No one was hurt in the fire. The suspect was paid $137,000 on an insurance claim he filed with Penn-Star Insurance Company. Investigators learned that the holder of a mortgage on the building was expected to bring foreclosure actions against the suspect two weeks before the fire. Moreover, two days before the fire, the suspect allegedly removed NASCAR mementos that he owned and stored in the restaurant. Arson investigators used an accelerant detection canine to uncover evidence at the scene. Fake Claimant

• An investigation conducted jointly by the Frauds Bureau, the Queens DA’s Office and Progressive Insurance Company’s SIU resulted in the arrest of a Staten Island man formerly employed as a senior claims specialist for Progressive charged with stealing more than $80,000 from the insurer. On 26 separate occasions between 11/1/06 and 12/31/08, he re-opened closed cases and added new fake claimants who were, in fact, his friends and relatives. He issued checks ranging from $975 to more than $8,000, with the money winding up in his pocket. He began working for Progressive in October 2002 but was terminated in January 2009 when the company discovered an unusual pattern of activity in the claims he was supervising. Progressive referred the matter to the Frauds Bureau for investigation. Rate Evasion

• An investigation by the Frauds Bureau resulted in the arrest on 4/29/10 of a husband and wife who operated two livery transportation businesses. The couple reported to The Robert Plan that their vehicles were airport limousines and the businesses were run out of Suffolk County. However, evidence gathered by investigators indicated that the vehicles were ordinary limousines operating throughout the five boroughs of New York City. As a result, The Robert Plan was defrauded of more than $50,000 in premiums. Trumped Up

• A two-year investigation conducted jointly by the Frauds Bureau, the Town of Kent Police Department and the Putnam County DA’s Office led to the arrest on 4/19/10 of a liquorstore owner accused of arson and insurance fraud. He originally reported that he was assaulted, robbed, tied up and left in his burning store by four unknown persons on 5/24/08. However, the investigation revealed that his business was in financial ruin. The bank had begun foreclosure proceedings and he owed $39,000 in unpaid state taxes. He was seen running from the store before the fire triggered an alarm at 11:40 p.m. When the police arrived, they found him standing outside the store with his hands bound behind his back. He was charged with setting the fire deliberately in an unsuccessful attempt to collect an insurance payment. Trio Sentenced

• James Kernan, former president of Oriska Insurance Company, and his wife, Marlene Kernan, former president of Monument Agency which acted as the agent for Oriska, had pleaded guilty on 3/20/09 to one count of knowingly and willfully permitting Robert “Skip” Anderson, a three-time convicted felon, to be engaged in the business of insurance. In addition to Oriska, James Kernan ran two other insurers and an agency from his headquarters in Oriskany, NY. On 1/29/10, he was sentenced to five years’ probation, 400 hours of community service and a $250,000 fine. Marlene Kernan was sentenced to two years’ probation and a fine of $182,708. Anderson pleaded guilty in July 2008 to conspiracy to commit mail fraud and wire fraud. He was sentenced on 5/10/10 to five years’ probation and paid a fine of $5,000. As part of the case resolution, Anderson forfeited $865,000 to the U.S. government on 8/24/08. The Frauds Bureau received $346,000 of the total forfeiture amount as a full partner with the FBI in the investigation. James Kernan and Anderson were indicted on 1/30/08 on charges that they schemed to collect millions of dollars in premiums from professional employer organizations (PEOs) on behalf of Oriska in Arizona, California and Pennsylvania, where they are not licensed, for workers’ compensation policies that provided no real coverage. Both men have claimed that the policies were issued in New York, where Oriska is licensed, and transferred by the PEOs to affiliates in other states. In July 2006, the FBI raided Kernan’s offices in Oriskany and a motel that Anderson was using as a business office. Within several days, the Superintendent of the New York Insurance Department took over Oriska with court approval. However, the company was returned to Kernan by the New York Supreme Court. Kernan subsequently resigned his positions as CEO and member of the boards of directors of the three insurance companies. Oriska and one other insurer were given over to new management and the third company was sold.  Guilty Of Wire Fraud

• Jonathan Boxman, who controlled a real estate title insurance company licensed in New York and various other title abstract companies and agents, pleaded guilty in early May 2010 to wire fraud for bilking clients of more than $1.7 million, including almost $385,000 from a church in Queens. His companies acted as settlement or escrow agents in real estate deals. They received large sums of money to pay mortgage recording fees, real estate taxes and other fees attendant to the purchase of commercial and residential properties. However, an investigation by the Frauds Bureau and the FBI revealed that Boxman instead used the money collected to pay the operating expenses of his companies. As a result, several mortgages and deeds went unrecorded. He faces up to 20 years in prison when he is sentenced. Personal Info Stolen

• A former employee of an insurance agency that wrote policies for National Income Life Insurance Company received a 1099 form for commissions he purportedly received based on policies that were written after he left the agency. He reported the matter to the Nassau County Police Department who notified the Frauds Bureau and an investigation was initiated. Evidence indicated that five agents were involved in a scheme that used identity theft, falsifying business records and forgery to establish fake insurance policies, earning commissions and guaranteed bonuses based on selling those policies. The five defendants were arrested on 5/13/10 and charged with using the company-issued agent code of the former employee to write the policies and forging his signature to cash the commission checks. Major Health Care Fraud/Money Laundering Scheme

• An investigation by the Frauds Bureau, the Office of the U.S. Attorney for the Eastern District and the NYPD led to the 6/15/10 arrest of 17 defendants (an 18th defendant who had fled to Florida was arrested on 6/17) for their participation in health care fraud and money laundering schemes. Agents from Immigration and Customs Enforcement, the IRS and the FBI executed search warrants at the offices of 12 durable medical equipment retail companies that were operated by the defendants in Brooklyn and seized bank account assets. The defendants allegedly used their companies to submit fraudulent invoices to private no-fault insurers for reimbursable expenses for durable medical equipment at prices much higher than the price paid by the defendants, as well as for durable medical equipment that was never obtained. They laundered the proceeds by issuing checks to their companies which were cashed at various check-cashing facilities and the cash was delivered back to the defendants. Suspicious Postmarks

• A former New York State resident began collecting wage-replacement benefits after he reported a back injury while employed as a truck driver in 1990. During the benefit period, he submitted 13 Work Activity reports stating that he was unable to work as a result of his injury. Many of these reports bore Florida postmarks, arousing suspicion that resulted in an investigation by the Frauds Bureau, the State Insurance Fund and the State Police. Through surveillance, investigators found that the suspect was living and working full-time as a mechanic in Florida. Between 2005 and 2010, he collected $39,000 in benefits to which he was not entitled. On 6/28/10, he was arrested on charges of insurance fraud, offering a false instrument for filing and violation of the Workers’ Compensation Law. 2007 Murder Leads To Arrest For Workers’ Comp Fraud

• An investigation by the Frauds Bureau and the Workers’ Compensation Board’s Office of the Fraud Inspector General resulted in the 6/17/10 arrest of a Norwich, NY, property owner for failing to obtain workers’ compensation insurance coverage for an employee who managed several of his apartment buildings. The employee was raped and murdered inside an apartment in one of the buildings in 2007. The tenant of that apartment was sentenced to life in prison for the crime. Authorities learned of the defendant’s failure to secure the coverage when the employee’s estate filed a death benefit claim with the Workers’ Compensation Board. The defendant reimbursed the Board $50,000 that it had paid the employee’s estate, $5,000 in funeral expenses and another $6,000 in penalties. He also has an outstanding $30,000 penalty for operating without insurance in 2010. He is disputing that penalty, claiming he has no employees.

Illegal Asbestos Removal Case

• Ronald Mancuso, the last family member to be sentenced in a case involving conspiracy and mail fraudrelated charges, was given three years’ probation on 7/29/10. He testified against the other family members at trial. His father, Lester Mancuso, and two brothers, Steven and Paul, were sentenced on 6/9/10 in the same case after pleading guilty on 10/28/09 to conspiring to cover up an illegal asbestos removal operation throughout the Mohawk Valley region. Lester Mancuso was sentenced to a term of 3 years, Steven Mancuso to 3 2/3 years, and attorney Paul Mancuso, the mastermind behind the operation, to 6 • years and a fine of $20,000. The fine was levied for allowing asbestos to be dumped in a field and washed down a drain at a Utica school. All three were also sentenced to three years of supervision once released from prison. The arrests were the result of an investigation by the Frauds Bureau, the Environmental Protection Agency and the Workers’ Compensation Board’s Office of the Fraud Inspector General. Owner Give-Up

• In a case involving an owner give-up, a Brooklyn man reported to the NYPD that he had last seen his 2006 Mitsubishi Endeavor on 1/6/10 and discovered it missing the next day. He subsequently filed a claim with Farmers Insurance Group for the loss. However, an investigation by the Frauds Bureau, the FDNY Fire Marshals and the NYPD’s Auto Crime Division uncovered evidence that on 1/4/10, units from the FDNY had responded to a passenger vehicle fire in the Bronx. The vehicle was identified as the Mitsubishi Endeavor reported stolen by the suspect. He was arrested on 7/27/10.

Video Tape Evidence

• Following a bus accident involving the Niagara Frontier Transportation Authority, an Erie County man reported that while a passenger on the bus, his head struck a pole when the accident occurred, causing injuries to his back, neck, forehead and shoulders. However, video surveillance on the bus during the accident showed that the suspect never struck any pole. An investigation conducted jointly by the Frauds Bureau and the NFTA resulted in the arrest of this defendant on 7/23/10. He was charged with insurance fraud, grand larceny and offering a false instrument for filing. In two additional occurrences, defendants were arrested on 7/14/10 and charged with insurance fraud, offering a false instrument for filing and attempted grand larceny when they falsely claimed injuries related to accidents involving the Niagara Frontier Transportation Authority. One defendant reported that while waiting for a bus, he was struck in the head by a lighting fixture after the bus collided with a light pole. However, an investigation conducted jointly by the Frauds Bureau and the NFTA turned up video surveillance tapes showing the lighting fixture never struck the defendant. In the second incident, the defendant reported that while she was a passenger on a bus, an accident caused her to strike her head numerous times on poles. During an investigation by the Frauds Bureau, the NFTA, the Erie and Niagara County DA’s Offices and the Niagara Falls Police Department, video surveillance tapes again showed the incident reported by the suspect never occurred. In fact, she did not hit her head nor did she move at all during the accident. (Also see October 2010 arrest summary (Bus-Ted!) for a fourth case involving the NFTA.) This investigation is continuing.

Chiropractor Sentenced

• Dr. Anthony LaTona, a Queens chiropractor, was sentenced on 7/14/10 to a conditional discharge and waived his rights to future claims totaling $8.5 million. He was convicted on 6/3/10 of insurance fraud in the 3rd degree after investigators found that he convinced a “patient” to fabricate injuries and then billed Empire Blue Cross and Blue Shield more than $26,000 for medical treatments over a three-month period. He paid a $1,000 kickback to the “patient” who was actually a Frauds Bureau undercover investigator. At a meeting on 9/16/08, LaTona instructed the undercover to fake back and knee injuries in order to obtain insurance payments. The undercover operation commenced as a result of information received that Dr. LaTona had paid kickbacks to Verizon employees in order to use their medical information to bill insurance companies.

Sentenced For Murder, Manslaughter, Arson

• Jeffrey Alnutt, who was convicted on 5/10/10 of charges that he set a fire in 2007 at a home he owned in which a tenant died, was sentenced on 8/19/10 for those charges. Alnutt received a sentence of 25 years to life on a mur der conviction; 5-to-15 years on second- degree manslaughter; 25 years on second-degree arson; 5-to-15 years on third-degree arson; and time served on second-degree reckless endangerment. He had previously been convicted of setting fire to another home he owned in 2004 and is serving 5- to-15 years in that case. All the sentences are to be served concurrently. Alnutt’s daughter and son-in-law also got jail time for their part in the 2004 scheme. The jury convicted them of conspiring to set fire to the home in order to collect an insurance payment of $210,000 on a claim they filed for the loss. An investigation conducted jointly by the Frauds Bureau, the Fulton County DA’s Office, the Gloversville Police and Fire Departments, the State Police and the State Office of Fire Prevention and Control resulted in successful conclusions in these cases.

$6.7 Million Stolen

• The owner and president of a title abstract company and his company were indicted on charges of stealing more than $6.7 million in connection with more than 105 real estate transactions. His company acted as a title agent for various title insurance companies, primarily Stewart Title Insurance Company. Between November 2006 and April 2008, he and his company allegedly failed to record the deeds, mortgages and other documents on 105 real estate closings, diverted the money to various accounts and then depleted the accounts. Stewart Title, having been obligated by the defendant and his company to insure the transactions, ultimately sustained the loss from the thefts and paid nearly $5.4 million to cover unpaid fees and taxes. The Frauds Bureau and the Manhattan DA’s Office pooled resources in the investigation that led to the arrest on 8/5/10.

Sentenced In Fraudulent Real Estate Scheme

• Aaron Dare, an Albany mortgage broker, was sentenced on 9/30/10 to two consecutive sentences of 4• years in state prison. In addition, a confession of judgment for $1,741,609 was entered. He had pleaded guilty in April 2009 to two counts of grand larceny for his participation in a scam in which he sold properties to individuals who were financially unfit to purchase them. He fronted the down payments and submitted all the applications for the mortgages and title/homeowners insurance policies. He used fictitious information to have the properties appraised at inflated values. Both the buyers and sellers lost on the deals, liens on the properties did not get paid off and Dare pocketed the mortgage money. The Frauds Bureau initiated a case when the State Police requested assistance with their investigation in connection with a fraudulent mortgage/real estate scheme. Strike Force Success

• An investigation by the Medicare Fraud Strike Force, of which the Frauds Bureau is a member, led to the 9/22/10 arrest of a surgeon on charges that from 2/09 to 1/10, he defrauded Medicare and numerous other health care benefit programs of at least $3.5 million. Investigators began reviewing the doctor’s practice after receiving complaints from patients who said the doctor had submitted claims for services they had not received. He allegedly consistently filed claims for office visits, examinations and subsequent surgical procedures as if he were treating unrelated conditions, when in fact he was providing follow-up services related to an initial procedure. In addition, he often billed for working more than 24 hours in a day. A search warrant was executed at his office on the day of his arrest and bank records were seized.

Premium Fraud

• The owner of a painting business reported to the State Insurance Fund that his sales for the 2006-2008 period totaled $956,827 and was billed accordingly for workers’ compensation coverage. However, an investigation by the Frauds Bureau and the State Fund revealed that his sales for that period actually totaled $2,621,757. As a result of the fraud, he avoided paying the Fund $180,191 in additional premiums due. He was arrested on 9/9/10 and charged with insurance fraud, grand larceny, falsifying business records and violation of the Workers’ Compensation Law. BUS – TED!

• An upstate resident was the fourth defendant arrested in 2010 for allegedly faking injuries after minor accidents involving Niagara Frontier Transportation Authority (NFTA) buses. The other three were arrested in July. This most recent defendant, arrested on 10/22/10, reported that she was injured when she was thrown about the inside of the bus. Video images showing each of the four behaving casually during and after three separate low-speed accidents contrasted with insurance claims they later filed reporting that they suffered severe head, neck and back injuries. The arrests were the result of an investigation into the accidents by the Frauds Bureau, the NFTA, the Erie and Niagara County DA’s Offices and the Niagara Falls Police Department. Revoked Physician Gets Prison Sentence

• Akiva Abraham, a former physician whose license was revoked in 2005, was sentenced on 10/15/10 to 4-to-12 years in prison following his 8/25/10 conviction on a charge of insurance fraud. At trial, he was acquitted on charges of arson and reckless endan germent. The case revolved around a fire at The Saratoga Winners nightclub, a commercial property he owned in Colonie, NY. The property was closed at the time of the fire and had been vacant for three years prior to Abraham’s purchase. He over-valued the property in order to obtain a $475,000 mortgage and insured the property based on the bogus mortgage. After the fire, he filed a property loss notice with his insurer in an attempt to collect more than $380,000 in insurance proceeds. The case was investigated by the Frauds Bureau, the Town of Colonie Police and Fire Departments, the State Police, the Albany County DA’s Office, the State Office of Fire Prevention and Control and the Albany County fire coordinator.

No Proof

• An allegedly fraudulent homeowners insurance claim filed with Allstate Insurance Company led to the 10/19/10 arrest of an upstate woman who was charged with insurance fraud. Her claim stated that several Harley Davidson motorcycle parts had been stolen from a storage shed on her property. In support of the claim, she submitted receipts from a local cycle shop as proof that she had purchased the parts for $18,525. However, investigators from the Frauds Bureau and the Irondequoit Police Department obtained statements from the cycle shop and from a Harley Davidson dealership stating that the receipts were fraudulent. The defendant voluntarily met with investigators and during an interview admitted that she knew the receipts were false when she submitted them. Nonexistent Prescriptions

• A Rochester woman was charged with submitting allegedly fraudulent documents to Kemper Insurance Company from 8/7/06 to 5/18/09 in support of her claim for workers’ compensation benefits. She began collecting benefits following a jobrelated injury and later contacted Kemper stating that she did not realize prescription drugs would be covered. She informed Kemper that she had been paying cash for her prescriptions for several years and the insurer advised her to submit her receipts for payment. At that point, she started faxing paperwork to Kemper documenting prescriptions she claimed to have had filled between 2006 and 2009. An investigation by the Frauds Bureau, the Workers’ Compensation Board’s Office of the Fraud Inspector General and the Monroe County Sheriff ’s Office turned up evidence that the defendant was reimbursed more than $245,900 by Kemper for prescriptions she never obtained. She was arrested on 10/8/10 and accused of insurance fraud.

Mortgage Fraud

• In February 2008, the New York State Attorney General’s Office requested the Frauds Bureau’s assistance in a mortgage fraud investigation that led to the arrest on 10/6-7/10 of five suspects – namely, the owner, manager, mortgage broker, office manager/realtor and attorney – affiliated with the same mortgage company in Colonie, NY. They allegedly targeted homeowners who were having financial difficulties. They tricked the victims into executing “leaseback” agreements with the mortgage company which then took possession of the homes and sold them to straw buyers at inflated prices. The company kept the proceeds of the sales and the homeowners usually were evicted because either the mortgage was never paid by the mortgage company, or the leaseback agreement included penalties for late payments that increased the rent owed to an amount typically too costly for the lessees.

Broker Caught

• An investigation conducted jointly by the Frauds Bureau and the Queens DA’s Office led to the 11/22/10 arrest of a licensed insurance broker who was the president and owner of two insurance brokerages in Queens. According to the charges, the defendant failed to remit $606,770 in premium payments that she had received from more than 400 clients between 1/1/09 and 12/31/09. Her actions defrauded four insurance companies – Maya Assurance, American Transit, Hereford and Fiduciary Insurance Company of America – of premiums owed. In addition, she submitted 43 checks totaling $121,750 to two of the insurers in an attempt to conceal the crime. The checks were returned because of insufficient funds. Orthopedist Convicted

• Michael Palmieri, an orthopedist who was arrested on 5/28/09, was convicted on 11/19/10 of insurance fraud, offering a false instrument for filing and petit larceny in connection with a scheme to defraud the workers’ compensation system. From 2001 to 2006, the doctor filed 55 reports stating a patient (former correction officer Leo Coletti) was totally disabled, was not working and should continue to receive benefits. In exchange, the patient, who owned a general contracting and home repair business, agreed to do renovations on the doctor’s home and office. Coletti pleaded guilty in 2006 to grand larceny and filing a false tax return and was ordered to pay $131,853 in restitution. Palmieri’s sentencing is scheduled for 2/12/11. An investigation by the Frauds Bureau, the Workers’ Compensation Board and the Westchester County DA’s Office led to the arrests in this case.

Arson Fire

• An investigation by the Frauds Bureau, the Mt. Kisco Police Department Detective Squad and the Westchester County Arson Task Force led to the arrest of two defendants on 11/19/10 in a case involving an auto give-up. Investigators uncovered evidence indicating that defendant #1 paid defendant #2 to destroy his 2008 Saturn Astra by fire because he could no longer afford the payments. Defendant #1 left the car in the parking lot at his work place with the win dows open. Defendant #2 allegedly poured gasoline through the open windows and set the car on fire. Defendant #1 was charged with insurance fraud and conspiracy. Defendant #2 was charged with arson. Police Officer Nabbed

• A City of Newburgh police officer was arrested on charges that while off duty at 12:20 on 10/11/09, he slammed his truck into the back of a car on a road in Marlboro, a hamlet in upstate New York, and fled the scene. The car rolled, trapping one of the four occupants inside. When police and firefighters arrived at the scene, they freed the trapped passenger who had suffered broken vertebrae and serious cuts. He and another passenger were taken to a nearby hospital for treatment. Nineteen hours later, the defendant reported having had an accident but stated that his car had struck a deer in the Town of Newburgh, a few miles south of the true accident scene. He subsequently filed a claim for the damage to his truck. However, an investigation by the Frauds Bureau, the Marlboro Police Department, the DMV, the State Police and the Ulster County DA’s Office tracked the truck to the body shop that had done the repair work and that, together with a forensic examination and numerous interviews, led to the arrest on 11/16/10.

Guilty Plea in Mortgage/Title Fraud

• Brian Madden, the president and cofounder of Liberty Title Agency, pleaded guilty on 12/14/10 in Manhattan federal court to one count of wire fraud and one count of insurance fraud. He also controlled and operated two other title insurance agencies. Madden misappropriated millions of dollars of escrow and other client funds and embezzled a part of those funds for his personal use. In particular, between January 2008 and April 2009, he withdrew more than $2 million in cash from Liberty, one of the largest independentlyowned title insurance agencies in New York State. The withdrawals at times totaled more than $300,000 in a single month. To sustain Liberty’s operations, Madden essentially used new funds from clients to pay off the debts to older clients. In addition, he failed to record dozens of real estate transactions in a timely fashion in spite of the fact that he had already been paid to record those transactions. He faces a statutory maximum sentence of 20 years in prison on the wire fraud charge and ten years on the insurance fraud charge. Sentencing is scheduled for 3/29/11. The investigation was conducted by the Frauds Bureau, the Office of the U.S. Attorney for the Southern District and the FBI.

Not Disabled

• The defendant in this case began collecting workers’ compensation wagereplacement benefits after being classified with a permanent partial disability resulting from a work-related back injury on 10/5/88. In January 1989, he advised the State Insurance Fund that he had returned to work for a roofing company earning $400 a week. During the benefit period, he submitted 19 documents stating that his salary was $400 a week. During the same period, his employer submitted 16 reports confirming the $400 salary. However, W-2 forms and other documents revealed that he was earning substantially more than $400 a week, thus allowing him to collect $83,400 to which he was not entitled. Both he and the roofing company were charged in this case. The Frauds Bureau, the State Police and the Workers’ Compensation Board’s Office of the Fraud Inspector General pooled resources in the investigation that led to the arrest on 12/17/10.

Persistent Fraudster

• A Brooklyn woman and her friend were caught shoplifting. When officials tried to apprehend them, a fistfight ensued and the two women attempted to flee in the defendant’s car. They were caught and charged with robbery. The car was impounded and the NYPD gave the defendant a voucher for the vehicle. She subsequently tried to report the car stolen at her local police precinct but when the police learned the car had been impounded, they would not take the report. The defendant then went directly to Liberty Mutual Insurance Company and again falsely reported the car stolen. Her 12/14/10 arrest for insurance fraud was the result of an investigation by the Frauds Bureau and the NYPD’s Auto Crime Unit.

At Home

• The home of a Lewis County couple was damaged after a fire started in a downstairs closet on 9/9/09 while they were out. They filed a claim for living expenses under their homeowners policy with New York Central Mutual Insurance Company. In support of the claim, they submitted a lease agreement showing that they had rented temporary living quarters and included receipts for $2,400 a month in rent from 10/09 to 6/10. The couple was paid $17,360 in rent and additional expenses by the insurer. However, investigators learned that the lease and receipts were fraudulent and the couple was in fact still living in the home that was damaged by the fire while repairs were being made. In addition, they submitted to the insurer a $1,125 invoice for 15 cords of firewood that they claimed had been delivered to the “rented” home to supplement the heat. In fact, evidence determined that this premises did not have provisions for burning wood but was heated by propane gas. The arrests on 12/8/10 were the result of an investigation by the Frauds Bureau.

A word about No Fault

After several years of decline, the number of suspected no-fault fraud reports began to rise in 2007, evening off in 2010. Suspected no-fault claims totaled 12,807 in 2010, accounting for 53 percent of all fraud reports received during the year. The problems in this area are mounting – see Insurance Advocate cover story February 7, 2011.