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Financial Fraud Law

‘Obscenely Profitable’ No-Fault Insurance Fraud, Feds Allege

 New York's no-fault insurance law was passed years ago to create a simple, efficient system that would provide prompt compensation to accident victims without regard to fault, and in that way reduce costs for both courts and insureds. Under the law, automobile insurance providers are required to include in their policies coverage for injuries arising from car accidents, irrespective of who is to blame for the accident. The law requires car insurance providers to reimburse injured persons for "basic economic loss," including medical expenses, and it sets forth a schedule of permissible charges for specific services. An injured person who seeks medical treatment may assign her right to no-fault benefits to her medical provider, and that kind of assignment typical occurs. 

And that, according to Manhattan U.S. Attorney Preet Bharara, is what has led to the largest no-fault automobile insurance fraud case ever and the first case of its kind to allege violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”) – involving charges against 36 individuals for allegedly participating in a $279 million health care fraud scheme.
Prosecutors say the indictment includes racketeering charges against eight members and associates of a criminal organization consisting primarily of individuals of Russian descent who were the owners and controllers of fraudulent medical clinics (the “No Fault Organization”), as well as 10 licensed doctors and three attorneys.
“Today’s charges expose a colossal criminal trifecta, as the fraud’s tentacles simultaneously reached into the medical system, the legal system, and the insurance system, pulling out cash to fund the defendants’ lavish lifestyles. As alleged, the scheme relied on a cadre of corrupt doctors who essentially peddled their medical licenses like a corner fraudster might sell fake ID’s, except those medical licenses allowed unlawful entry, not to a club or a bar, but to a multi-billion dollar pool of insurance proceeds.”
FBI Assistant Director-in-Charge Janice K. Fedarcyk said: “Our investigation uncovered a pattern of lucrative fraud exploiting New York’s no-fault auto insurance system to the tune of more than a quarter of a billion dollars. 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.”
NYPD Commissioner Raymond W. Kelly said: “Our undercover officers were treated like thousands of other ‘patients’ receiving therapy, tests, and medical equipment they didn't need.”
The following allegations are based on the unsealed Indictment and other documents filed in Manhattan federal court:
From at least 2007 through 2012, the No-Fault Organization has engaged in a massive and sophisticated scheme to defraud automobile insurance companies of hundreds of millions of dollars by, among other things, creating and operating medical clinics that provided unnecessary and excessive medical treatments in order to take advantage of the No-Fault Law. In order to mislead New York authorities and private insurers, the true owners of these medical clinics (“Clinic Controllers”), almost all of whom were also members and associates of a criminal organization consisting primarily of individuals of Russian descent, paid licensed medical practitioners, including doctors, to use their licenses to incorporate the professional corporations, through which the medical clinics billed the private insurers for the bogus medical treatments.
These doctors effectively operated as “straw owners” of the clinics.
The Clinic Controllers paid thousands of dollars in kickbacks to runners who recruited automobile accident passengers to receive medically unnecessary treatments from the no-fault clinics. They also instructed the clinic doctors/straw owners to prescribe excessive and unwarranted referrals for various “modality treatments” for every patient they saw. The treatments included physical therapy, acupuncture, and chiropractic treatments – as many as five times per week for each – and treatments for psychology, neurology, orthopedics, and audiology.
Clinic doctors also prescribed unnecessary MRI’s, x-rays, orthopedics, and medical supplies.
The Clinic Controllers received thousands of dollars in kickbacks for patient referrals from the owners of the modality clinics (“Modality Controllers”), who were members and associates of the same criminal organization to which the members of the No Fault Organization and Clinic Controllers belonged.
The Clinic Controllers also referred patients to personal injury lawyers who filed bogus lawsuits on behalf of the patients and coached them on what injuries to claim in order to get as many treatments as possible. The personal injury lawyers also paid the Clinic Controllers thousands of dollars in kickbacks for these referrals.
In order to conceal and disguise the millions of dollars in claims paid by the automobile insurance companies, the members of the No-Fault Organization laundered the money through shell companies and corrupt check-cashing services. Often, checks would be written from the No-Fault or Modality Clinics with the payee line left blank, and in amounts less than $10,000 in order to avoid potential financial institution reporting requirements and other scrutiny. The checks were then 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 cash was then returned to members of the No-Fault Organization to fund kickbacks and for their personal use. 

At other times, 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.

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