ATTACHMENT A

DEPARTMENT OF INSURANCE – FRAUD DIVISION
Workers’ Compensation Insurance Fraud Program
FY 1999-2000 District Attorney’s Arrest and Prosecution Summary

COUNTY

ARRESTS

PROSECUTIONS

CONVICTIONS

PENALTIES

RESTITUTION

Felony Misdemeanor Cases Suspects Total Chargeable Felony Misdemeanor Ordered Collected Ordered Collected
Alameda 17 29 32 $1,540,465 13 $5,393 $472 $176,456 $121,592
Amador 11 12 $2,147 3
Butte 6 21 21
Contra Costa 15 37 38 $955,872 10 7 $2,700 $1,055 $410,068 $93,500
El Dorado 3 3 3 $7,890 2 $600 $600
Fresno 19 32 37 $303,950 7 $5,000 $5,000 $130,658 $57,814
Imperial
Kern 5 6 18 18 $183,874 3 5 $1,580 $1,580 $52,598 $2,508
Kings 4 18 6 23 $102,373 3 $740 $10,293 $1,198
Los Angeles 65 134 171 $107,701,213 57 9 $7,440 $3,151 $1,481,163 $940,683
Madera 1 2 2 1 $5,500 $5,500
Marin 5 8 8 $339,501 5
Mendocino
Merced 3 5 5 $55,000 1 $200 $200 $16,000
Monterey 26 23 23 12

$4,400

$70,795
Orange 27 45 49 $2,549,624 19 $14,100 $3,176 $538,936 $210,276
Placer 1 6 6 2 1 $1,315 $1,025
Plumas
Riverside 17 55 57 17 6 $5,850 $1,656 $262,326 $38,524
Sacramento 25 1 55 58 $1,320,796 12 14 $4,400 $2,043 $474,441 $85,175
San Bernardino 35 68 79 $2,187,642 25 $9,673 $9,423 $476,756

$119,329

San Diego 77 1 135 135 $8,727,716 63 10 $23,350 $2,502 $2,708,980 $720,399
San Francisco 7 11 18 $398,700 2 1 $81,239 $70,000 $7,898 $6,664
San Joaquin 19 2 19 20 $395,000 6 10 $1,210 $220 $76,612
San Luis Obispo 1 1 1 1 $100 $100 $1,500
San Mateo 6 29 35 $3,113,894 10 $1,320 $1,110 $175,442 $151,329
Santa Clara 15 41 43 $1,204,694 11 $1,949 $533,665
Santa Cruz 2 8 8 $149,622 1 1 $300 $300 $1,548 $790
Shasta 8 14 14 $610,361 8 $3,244 $221 $28,057 $626
Siskiyou 1 1
Solano 6 6 6 $38,533 1 $200 $1,450 $925
Stanislaus 9 17 17 $742,193 6 1 $1,100 $815 $83,684 $200
Tulare 7 9 17 19 $7,600,000 10 9 $12,220 $1,054,602 $1,000,000
Ventura 8 13 13 $620,705 3 $1,020 $200 $26,262
Yolo 2 8 8 $204,000 2 $100 $14,674

TOTAL

436 42 878 980 $141,055,765 308 82 $190,743 $103,824 $8,821,389 $3,557,032

Footnote:
DA cases (Investigations and Prosecutions) include all cases developed by Fraud Division and DA together, cases developed singularly by Fraud Division, and DA investigator cases where available.

 


ATTACHMENT B

Case Examples

Mark Kaplan, M.D. - Los Angeles County
The Kaplan investigation began in March 1992 when a complaint from an insurance company and an effort by a Teamsters local that encouraged its members to provide information against the fraud ring.

Dr. Mark Kaplan, 53 and his ex-wife, Polina Ioffe, who allegedly worked as his office administrator, plus seven others mastermined and enterprise that recruited thousans of laid off workers by cappers and persuaded them to make false injury claims.  These accomplices then went through a battery of unnecessary, overpriced tests at clinics controlled by Kaplan and run up millions in phony bills.  Kaplan's company often charged insurance companies $8,000 to $12,000 per patient for an initial medical evaluation.

Workers' compensation claims then were filed against a person's former employer.   Kaplan targeted undocumented immigrants and non-English speaking because they, in many cases, did not fully understand what they were being asked and unlikely to report what they knew.

The investigation was conducted by the Fraud Division, the Los Angeles District Attorney’s Office, with cooperation from CAN Insurance Company, State Compensation Insurance Fund, California Compensation insurance, ARCO and Teamsters Union number 495.  Ten thousand hours of investigation were devoted to the fraud ring.

Kaplan and his wife set up shops in Southern California.  Their medical clinics had many different names: Harper, Park, Valnor, Verwood, Benton, Benten, Associate Diagnostic Imaging, and ADI.  These clinics operated out of several locations.  It is estimated that Kaplan received at least $30 million to $50 million from his fraudulent medical practice.

During the course of investigation, search warrants were served at 15 locations and more than 80 witnesses were interviewed.   On July 1993, Kaplan and Ioffe were arrested at their Beverly Hill estate, another 9 employees of the enterprise were charged.  Four million dollars in 10 banks were frozen and $15 million in real property was held.

On March 31, 1995, Kaplan and his wife were sentenced in the Los Angeles County Court by Judge Nancy Brown for their insurance fraud activities.  Dr. Kaplan received 8 years in State Prison plus $7.5 million was returned to the victims and to the Workers’ Compensation Insurance Fraud Account for future funding.  His wife was sentenced to two years in State Prison. Seven suspects including a chiropractor and a medical doctor also were sentences to jail plus 5 years of probation.

The impact of Kaplan case was widespread.  Medical mill activity is no longer as prevalent as it was before.  It tool almost 3 years to investigate and prosecute this case.  The Kaplan case is associated with more than one thousand suspected fraudulent claims.

 

Hossein Ali Motamedi, Amir Zamyad, et. al - Los Angeles
The Motamedi investigation began in December 1994 when Republican Indemnity Insurance Company became suspicious of a $256 check for copier service.  Motamedi, a 33 year old owner of an auto body shop who had no medical or legal education background to open law firms and medical associations to process bogus claims in both workers’ compensation and automobile insurance.  Motamedi and Amir Zamyad masterminded a multimillion-dollar fraud ring that began in 1989 and spread to Texas, Washington, Virginia and Florida.  During the investigation, it was discovered that Motamedi had been arrested for receiving stolen vehicles and that several suitcases had been found in his car at the time of his arrest by LAPD.  Examining the seized property revealed several databases with five copy services which operated and related to thousands of auto accident cases.

Operation CONLAW, an anti-insurance fraud taskforce was established with personnel from Fraud Division, Department of Insurance, Los Angeles County District Attorney Office, and with the assistance from the FBI, the Secret Service, the National Insurance Crime Bureau, Franchise Tax Board, the U.S. Postal Service and IRS.  Two prosecutors and five investigators were put on the case full time for at least two years.

Automobile staged accidents involve many lawyers and medical clinics as well as Russian organized crime.  Over 100 attorneys and/or law firms and 17 medical clinics are allegedly tied to these rings.  In June 1995, search warrants were executed on 59 locations.  Over 300 boxes of evidence along with numerous computers were seized.

On July 27, 1997, Motamedi and Zamyad were sentenced in Federal Court for their activities involving insurance fraud in Los Angeles area.  Motamedi received 41 months and Zamyad received 31 months in Federal Prison.  Motamedi received 8 years in state prison and Zamyad was sentenced to 9 years in state prison to be served concurrently with his federal term.  Zamyad also received a $10 million restitution order and $350,000 fine.  In addition, to Motamedi and Zamyad, other suspects such as Attorney Veronika Hayes received 3 years probation and had to resign from State Bar and serve 300 hours of community services, James White received one year in county jail plus 5 years probation and Michael Rappaport received 1 year county jail. It tool three years to investigate and prosecute this case.   This one case is associated with at least seven hundreds (700) suspected fraudulent claims.

                        

BUSINESSES AFFILIATED        NUMBER OF MATCHES (Reported SFCs)
Law Office of Veronica de Carol Hayes 446
Pacific Law Center (Downey, Calexico) 46
Associated Consultation Group 23
Metropolitan Medical      62
Hamlin Street Medical 0
Willshire Crescent Medical 20
Vine Health Clinic 7
Industrial Medical Clinic 8
Rays Medical 68
Santa Fe Multi Specialty 48
Southwest Rehabilitation Center 0
St. John’s Neck & Pain Center (Calexico) 1
Valley Health Care 59

TOTAL

788 matches

      

Primedex Case – Los Angeles
Primedex Corporation, Neurologic Orthopedic Associates Medical Group, Crown Imaging, David Gardner, Stanley Goldblum, and Vincent Puntere are charged with defrauding the workers’ compensation system by “overbilling” and billing for unnecessary procedures.  Primedex was the self-proclaimed, largest provider of workers’ compensation medical benefits in Los Angeles area.  From 1987 through 1993, Primedex billed insurance carriers and self-insured employers over $250 million for medical-legal and treatment services.

In December 1992, more than 100 law enforcement of officers participated in the execution of search warrants at over 40 locations throughout California.  In June 1994, a second search warrant was obtained for approximately 30 locations in three different states.  A third search warrant that was obtained in March 1995 produced a voluminous amount of documentary evidence.   To date, more than three hundred witnesses have been interviewed by investigators from Los Angeles County District Attorney and Fraud Division.  More than 50 bank accounts have been analyzed.  The case has required tens of thousands of hours by dedicated investigators.  The indictment in this case was returned on May 30, 1996, and the court has ruled on defendants’ motion to recuse the District Attorney.  They challenged the statutory funding scheme and claimed conflicts of interest based upon campaign contributions by various insurance carriers and self-insured to the District Attorney and the Insurance Commissioner.  A full evidentiary hearing was held and the defense motion was denied in its entirely.  The California Supreme Court ultimately denied a petition for Writ of Mandate.  On March 30, 2001, the final ruling by Judge Ito to go forward with a trial was postponed for another month.

 

Baldan Case – San Diego County
In the summer of 1996, per the suggestion of Fraud Division, the San Diego County District Attorney’s Office organized an “Employment Misrepresentation Strike Force,” to attack businesses engaged in employment misrepresentation within the underground economy.  The Strike Force in a joint agency effort of the Fraud Division, San Diego Auto City Police Department.  During the first project involving automotive repair shops, the Strike Force produced criminal cases against 12 defendants who are shop owners who committed employment misrepresentation.  The Strike Force is a huge success in San Diego.  In February 1997, the District Attorney’s Office obtained grand jury indictment against the 3 owners of D.G. Construction for the theft of $1.4 million from the State Compensation Insurance Fund (SCIF).  The county also filed employment misrepresentation charges 4 individuals in the Baldan Construction Company that defrauded SCIF by $ 400,000 between 1992-96 and the owner of a clothing factory that also defrauded SCIF by $200,000 between 1992-95.  These employment misrepresentation cases require a great deal of resources in order to investigate and prosecute.  Thousands of documents must be analyzed, former employees must be located and interviewed as possible witnesses to secure a prosecutable case.

 

G & G Cattle Company Case – Tulare County
Nineteen suspects were arrested in the workers’ compensation employment misrepresentation case in Tulare County.  The suspects are the owners and employees of a Tulare County cattle ranch who faced a 37-count felony including check forgery, workers’ compensation employment misrepresentation and workers’ unemployment insurance fraud.  The complaint alleged that over a nine-year period, Lonnie and Larry Guess, owners of the G&G Ranch, located East of Tulare, paid its 25 workers – mostly immigrants – in cash without withholding payroll and other taxes.   According to court documents, they cashed 157 forged checks totaling more than $1.5 million.  The Tulare County District Attorney’s Office and the Fraud Division began investigating the cattle company in September 1996, after being notified by Fremont Insurance Company that the ranch might have broken the law.  Specifically, the complaint alleges that in an eight-year span, the defendants:

-          Supplied false payroll information to the workers’ compensation insurance carrier.

-          Retained fraudulent payroll in unpaid workers’ compensation premium amounting to more than $600,000.

In September 1997, the Tulare County District Attorney served 10 search warrants on personal property, business property, and the corporate banking accounts of G&G Cattle Company.  In September 1998, criminal complaints were filed against 5 defendants charged with workers’ compensation fraud, unemployment violations, forgery and conspiracy.  In September 1999, Lonnie Guess, Larry Guess and Karen Reynolds entered pleas of “no contest” to three felony counts.  In addition to jail time, these defendants paid a total of $1 million in total restitution to Fremont Insurance, EDD, and the State Workers’ Compensation Insurance Fraud Account.

 

GUY’S Roofing Case – San Mateo County
In September 1996, Local 95 Roofing Union contacted Department of Insurance, Fraud Division, Employment Development Department (EDD), and San Mateo District Attorney’s Office regarding Guy’s Roofing paying employees cash for the overtime worked.  Fraud Division and EDD conducted interviews that supported union allegation and revealed cash payment scheme. 

On July 25, 1997, Fraud Division and EDD executed search warrants at the business and residence of Larry Guy in San Mateo County.  As a result of the evidence seized, EDD conducted an audit and determined that Larry Guy underreported $2,316,277 (1/92-7/97) in payroll.  Based on the $2,316,277 in underreported payroll, it was determined that Superior National Insurance, California Compensation Insurance and State Compensation Insurance Fund were defrauded of approximately $441,245 in workers’ compensation premium.

EDD’s audit revealed that Larry Guy issued 238 checks to employees in excess of $5,000 each and totaling $2,236,406.   These employees were disguised as subcontractors and issued checks on weekly basis.  It is suspected that this fraudulent activity started in 1987 which could have resulted in an additional $1.6 million in underreported payroll.

On November 16, 2000, Dan Smith, representing the Roofers Union testified as the Fraud Assessment Commission meeting.   Mr. Smith reported that the union initially became aware of the situation at Guy’s Roofing in 1988.  “Contractors were constantly calling the union to complain that this company’s prices were so low”, remarked Smith.  “The final outcome of the Guy’s Roofing investigation and conviction is that the public works market has spread out among contractors who pay their employees and pay for workers’ compensation, and appreciate that they are able to compete in the market,” noted Smith.

 

American Hardware Insurance Group – San Mateo County
The case involved three employees of American Hardware Insurance Group (AHI).  Rose French and Elsie Klise were claims examiners assigned to the “Workers’ Compensation Unit” out of the AHI San Mateo Branch Office.  These employees collectively embezzled over $171,870 from AHI Insurance. 

French and Klise’s duties as a claim examiner involved the investigation, evaluation, and processing of workers’ compensation injuries sustained by employees of AHI insureds.  French and Klise settled claims and issued and approved various payments on behalf of AHI.  AHI conducted an audit and determined that French and Klise fraudulently issued checks to businesses and individuals that either did not exist or had no file documentation to support such payments.  The investigation revealed that checks were issued to and cashed by relatives and friends of the two examiners.  French fraudulently issued payments to “bill collection companies” totaling $67,844.  Klise fraudulently issued payments to “workers’ compensation claimants” totaling $5,370.

Dale Hopkins was Claim Supervisor and supervised examiners like French and Klise.  The investigation discovered that Hopkins issued nine fraudulent payments to a company known as Altamont Enterprises totaling  $98,656.  Hopkins told DOI investigators that Altamont Enterprise was his dog kennel business.  It should be noted that Hopkins participated in the interviews of French and Klise during AHI’s initial investigation.  French, Klise, and Hopkins were sentenced to local jail time and ordered to pay full restitution.

 

Highland Framers Case – Alameda County
A coordinated investigation conducted by the California Department of Insurance, the California Employment Development Department, the California Franchise Tax Board, and the Alameda County District Attorney’s Office has resulted in multiple felony counts of workers’ compensation insurance fraud and employment tax evasion charges filed against four individuals.  Investigators were assisted by numerous entities, including the Arizona Department of Insurance, the State Compensation Insurance Fund, and Golden Eagle Insurance Company. 

Jay Neal Wright, age 48, and his son Jay Neal Wright II, age 27, both residential framing contractors of Phoenix, Arizona; Don Jay Wright, age 80, of Mesa, Arizona; and Attorney Timothy Miller, age 43 of Riverside, California were charged with multiple felony counts of workers’ compensation insurance fraud and employment tax evasion.  Arrest warrants were issued for all four suspects.  Attorney Timothy Miller surrendered to authorities immediately following issuance of the warrants.

Investigators found that Jay Neal and his son headed a large residential framing company with a multi-million dollar payroll, Highland Framers of Northern California, Inc., did business primarily in and around Alameda and Contra Costa Counties throughout much of the 1990’s.  In late1993, the Wright’s allegedly represented to insurers and State employment tax authorities that they had divested labor.  However, an examination of the alleged subcontractors used after 1993 revealed that at least two were merely shell corporations operated under direct control of Highland Framers.  It is believed that the shell corporations, allegedly created with the assistance of attorney of ownership and control, in order to avoid paying the appropriate workers’ compensation insurance premiums and State employment taxes.

Search warrants were served in California, Arizona, and Nevada.  Locations included business addresses, an attorney’s office, residences, two insurance broker’s offices, banks, and payroll companies.  The case resulted in the seizure of 150 boxes of evidence.  The victim insurance carriers include: SCIF, Golden Eagle, Farmers, Superior National, Frontier Pacific, and Credit General involving approximately 12 workers’ compensation insurance policies.  Investigators say that the fraud cost approximately $2 million in losses to insurers and approximately $6 million in losses to the State.

 

Donna Hayes Case – Alameda County
The defendant was charged with lying about a slip and fall cases against her employer.  Hayes claimed that she slipped and fell on her employer’s property, the Port of Oakland.  It is alleged she was injured otherwise.  Fireman’s Fund Insurance has paid almost $2.5 million on her slip and fall claim and there is the prospect for another $1.5 million or more on the workers’ compensation claim.  The Grand Jury indicted Donna Hayes in June 1999, and the case will go to trial soon.

  

Ann McGinnis, Chiropractor – Sacramento County
A Roseville chiropractor was indicted yesterday by a federal grand jury in Sacramento on 34 counts of mail fraud.  The indictment, following a two-year investigation by the Department of Insurance (DOI) Fraud Division, was handed down after the U.S. Attorney’s Office presented its case.

 Kimberly Ann McGinnis, 36, of Auburn, was ordered to appear before a U.S. Magistrate to face federal charges for mail fraud.  If convicted, McGinnis could lose her license to practice, face up to 42 months in state prison and be ordered to pay an undetermined amount in restitution.

In 1996, the DOI received complaints from several insurance companies alleging that McGinnis was engaging in fraudulent activities.  According to the complaints, McGinnis would set up booths at local fairs and flea markets offering free chiropractic examinations.  McGinnis would then allegedly target individuals she believed did not understand California’s workers’ compensation system and persuade them to go to her office.  Once these individuals were at her office, McGinnis would tell them that, according to her exam, they had been injured during their employment, when in fact they had not.  McGinnis would then instruct these individuals (now patients) to complete workers’ compensation claim form requesting benefits for work-related injuries.

The DOI investigation revealed that McGinnis allegedly billed various insurance companies through the U.S. Mail, demanding payment for medical/legal evaluations and comprehensive medical evaluation, which never performed.  In most cases, according to investigators, McGinnis did not treat the patient on the date of service for which she falsely billed the insurance company.

In May of 1996, a DOI Fraud Investigator went undercover as a patient with a fictitious non-work related injury.  Investigators say McGinnis falsely certified that the undercover investigator’s injury was sustained as a result of a job-related activity.  She then allegedly billed the workers’ compensation insurance company for additional treatments and reports.

As a result of the information obtained from various insurance companies and the DOI’s undercover operation, DOI Fraud Investigators served a search warrant on October 10, 1996, at McGinnis’s business and residence.  The investigators seized 138 patient files pertaining to workers’ compensation cases.  Seventy-four files contained bills to insurance companies for comprehensive reports at $500 each. Of these 74 files, only 23 comprehensive reports by McGinnis were found in her home or business.  As a result of the allegedly fraudulent billings, McGinnis received approximately $50,000 to which she not entitled. 

Summary
These are only a few case examples to illustrate that insurance fraud is a major threat against California consumers.  Evidence supports that an effective anti-fraud campaign in California has played a substantial role in reducing costs to honest employers statewide.  Fraud Division continues to investigate those complex cases, which will provide the greatest impact against insurance fraud.  However, Fraud Division also believes it s important to balance the caseload and pursue a certain number or provider and applicant cases, in order to assure that the Division’s strategy is comprehensive and to underscore the message that all types of fraud will be prosecuted.