LexisNexis® CLE On-Demand features premium content from partners like American Law Institute Continuing Legal Education and Pozner & Dodd. Choose from a broad listing of topics suited for law firms, corporate legal departments, and government entities. Individual courses and subscriptions available.
Insurance fraud is not a charge prosecutors like. Although it is an easy crime to prove since all it requires is a single document used with an intent to defraud an insurer, prosecutors prefer to deal with more complex issues and criminal charges. An example of how simple insurance fraud charges were made complicated started in actions of polices officers working in Baltimore, Maryland.
In 2012, a jury found defendant Samuel Ocasio, a former officer of the Baltimore Police Department (the “BPD”), guilty of four offenses relating to his involvement in a kickback scheme to funnel wrecked automobiles to a Baltimore auto repair shop in exchange for monetary payments. Ocasio was convicted on three Hobbs Act extortion counts plus a charge of conspiracy to commit such extortion. On appeal, Ocasio maintained that his conspiracy conviction is fatally flawed and must be vacated. He also challenged a portion of the sentencing court’s award of restitution.
Ocasio and ten codefendants were indicted in the District of Maryland in connection with the kickback scheme involving payments to BPD officers in exchange for referrals to a Baltimore business called Majestic Auto Repair Shop LLC (the “Majestic Repair Shop,” or simply “Majestic”). Nine of the defendants were BPD. The grand jury returned a seven-count superseding indictment charging only two defendants, Ocasio and another BPD officer, Kelvin Quade Manrich, who had not been named in the initial indictment. Thereafter, the conspiracy offense in the first indictment was dismissed as to each of the other defendants, in exchange for guilty pleas.
In United States of America v. Samuel Ocasio, 2014 U.S. App. LEXIS 8028, (United States Court of Appeals for the Fourth Circuit, April 29, 2014), [enhanced version available to lexis.com subscribers], the Fourth Circuit resolved the appeal and the question of the right to restitution.
From in or about the Spring of 2008, and continuing through at least February 2011, [Ocasio and Manrich], and others did knowingly and unlawfully combine, conspire, confederate, and agree together, with other [BPD officers], and with Moreno and Mejia to obstruct, delay, and affect commerce and the movement of any article and commodity in commerce by extortion, that is, to unlawfully obtain under color of official right, money and other property from Moreno, Mejia, and [the Majestic Repair Shop], with their consent, not due the defendants or their official position, in violation of the Hobbs Act.
The purpose of the conspiracy was for “Moreno and Mejia to enrich over 50 BPD Officers . . . by issuing payments to the BPD Officers in exchange for the BPD Officers’ exercise of their official positions and influence to cause vehicles to be towed or otherwise delivered to Majestic for automobile services and repair.”
The prosecutions underlying this appeal were the result of an extensive investigation conducted by the BPD and the FBI. The BPD began its investigation in the summer of 2009. When federal authorities joined the investigation in late 2010, the BPD had identified approximately fifty of its officers as possibly involved in wrongdoing with the Majestic Repair Shop. In the winter of 2010, the FBI placed a wiretap on Moreno’s telephone and began surveillance at both Majestic and at Moreno’s residence. During the period from November 2010 to February 2011, the FBI recorded thousands of phone calls between Moreno and various BPD officers, including Ocasio and Manrich.
The trial evidence established a wide-ranging kickback scheme involving the Majestic Repair Shop and BPD officers. The scheme was fairly straightforward: BPD officers would refer accident victims to Majestic for body work and, in exchange for such referrals, the officers would receive monetary payments. The payments made to BPD officers by the Majestic Repair Shop for their referrals of wrecked vehicles were made by both cash and check, and ranged from $150 to $300 per vehicle. After the kickback and extortion scheme began, knowledge of it spread by word-of-mouth throughout the BPD.
Ocasio, at trial, raised the primary argument that he pursues on appeal: that he could not be convicted of conspiring with Moreno and Mejia, because they were the victims of the alleged Hobbs Act extortion conspiracy. The following day, Manrich pleaded guilty to the charges lodged against him in the superseding indictment. Ocasio, however, proceeded with the trial and called five witnesses in his defense, three of whom were character witnesses. Ocasio himself did not testify. At the conclusion of the evidentiary presentations, Ocasio renewed his judgment of acquittal motion, which was again denied.
The prosecution sought further restitution with respect to Erie Insurance, predicated on the proposition that Ocasio had defrauded GEICO, which in turn had been reimbursed by Erie (as insurer for the at-fault driver involved in the accident with Ocasio’s wife). The court entered an amended judgment, directing Ocasio to make restitution to Erie in the sum of $1,870.58. That amount represented the difference between the total reimbursement made by Erie and the amount actually attributable to the Erie-insured motorist.
The appellate court, reviewing the conviction, must sustain a guilty verdict if, viewing the evidence in the light most favorable to the prosecution, it is supported by substantial evidence. Ocasio was convicted of conspiring with BPD officers, as well as Moreno, Mejia, and others known and unknown to contravene the Hobbs Act by extorting three victims – Moreno, Mejia, and the Majestic Repair Shop. Consistent with the statutory language, the trial court instructed that, in order to convict Ocasio of the Count One conspiracy, the jury was obliged to find that the prosecution satisfied the following elements:
1. That two or more persons entered the unlawful agreement that is charged in the indictment, starting in or about the spring of 2008, and this is the agreement to commit extortion under color of official right;
2. That the defendant, Mr. Ocasio, knowingly and willfully became a member of that conspiracy;
3. That one of the members of the conspiracy knowingly committed at least one of the overt acts charged in the indictment; and
4. That the overt act, which you find to have been committed, was done to further some objective of the conspiracy.
The statutory object of the conspiracy count was to violate the Hobbs Act, which provides, in pertinent part, that “[w]hoever in any way or degree obstructs, delays, or affects commerce . . . by . . . extortion . . . in furtherance of a plan or purpose to do anything in violation of this section shall be [guilty of an offense against the United States].”
One who knowingly participates in a conspiracy to violate federal law can be held accountable for not only his actions, but also the actions of his coconspirators. Contrary to Ocasio’s argument, nothing in the Hobbs Act forecloses the possibility that the “another” can also be a coconspirator of the public official. A bribe-payor’s mere acquiescence to the scheme suffices to render a bribe-taker guilty of extortion.
Although the Fourth Circuit affirmed Ocasio’s convictions it vacated the sentencing court’s award of restitution to Erie Insurance. Ocasio maintains that Erie was not a victim of any of his offenses of conviction. At best, he contends, Erie was the victim of an uncharged insurance fraud scheme. The controlling statute defines a “victim” as “a person directly and proximately harmed as a result of the commission of an offense for which restitution may be ordered including, in the case of an offense that involves as an element a scheme, conspiracy, or pattern of criminal activity, any person directly harmed by the defendant’s criminal conduct in the course of the scheme, conspiracy, or pattern.”
The statute authorizes restitution only for losses traceable to the offense of conviction. Indeed, nothing in the superseding indictment or in the trial evidence suggests that an object of that conspiracy was to commit insurance fraud. Nor does the record suggest that an insurance fraud scheme was part of a pattern of criminal activity included as an element of the Count One conspiracy. Perhaps Ocasio could also have been convicted of defrauding Erie Insurance or conspiring to do so, but that did not occur. The United States Attorney and the grand jury did not see fit to charge Ocasio with an insurance fraud scheme, and it would thus be inappropriate to penalize him as though he was also convicted of that offense.
Clearly the conspiracy that led to officer Ocasio’s conviction was an insurance fraud scheme by Majestic, who funded the bribery of Ocasio and other police officers, so that they could overcharge accident victims and their insurers for repairs of vehicles. It was a major insurance fraud scheme that hurt GEICO, Erie and other insurers.
Exercising prosecutorial discretion the US Attorney and the Grand Jury decided to only charge violation of the Hobbs Act. If they wished to punish the officers and gain restitution for the insurers the state of Maryland could prosecute the officers for violation of their insurance fraud statute. For reasons known only to the state they did not.
By Barry Zalma, Attorney and Consultant
Reprinted with Permission from Zalma on Insurance, (c) 2013, Barry Zalma.
Barry Zalma, Esq., CFE, is a California attorney who limits his practice to consultation regarding insurance coverage, insurance claims handling, insurance bad faith and fraud and acting as a mediator or arbitrator on insurance disputes. Mr. Zalma serves as a consultant and expert almost equally for insurers and policyholders. He founded Zalma Insurance Consultants in 2001 and serves as its only consultant. He recently published the e-books, "Zalma on Rescission in California - 2013"; "Random Thoughts on Insurance" containing posts from this blog; "Zalma on Insurance;" "Murder and Insurance Don't Mix;" “Heads I Win, Tails You Lose — 2011,” “Zalma on Diminution in Value Damages,” “Arson for Profit” and “Zalma on California Claims Regulations,” and others that are available at Zalma Books.
Mr. Zalma can be contacted at Barry Zalma or firstname.lastname@example.org, and you can access his free "Zalma on Insurance Fraud" newsletter at Zalma’s Insurance Fraud Letter.
For more information about LexisNexis products and solutions connect with us through our corporate site