Why is This Topic Important to Wealth Managers? Today We Continue with our Casual Friday Series with a Blogticle on Noteworthy Convictions and Arrests Regarding Recent Insurance Fraud and Scams in New York. Don’t let your name appear next.

Kelly Woods, an upstate New York woman who had relocated to Utah, was sentenced in June to 1-to-3 years in prison and ordered to pay $42,000 in restitution to the New York State Insurance Fund. She was extradited and arrested in March or faking a work injury in order to collect workers’ compensation benefits. She pleaded guilty to insurance fraud in April. On numerous occasions between July 2008 and November 2010, she reported that she suffered from permanent fixed torticollis, a condition that kept her head at a 90-degree angle at all times. However, she was observed on video moving her head and neck freely. As a result of the fraud, she collected $42,000 in benefits to which she was not entitled. She also signed a Workers’ Compensation Agreement waiving future claims to benefits, thereby freeing up nearly $600,000 in reserves that the State Insurance Fund had put aside for her fraudulent claim.

A Syracuse carpenter, Paul J. Keyes, who was originally charged with insurance fraud, violation of the Workers’ Compensation Law and offering a false instrument for filing at his arrest on 12/21/10, pleaded guilty to a lesser charge of disorderly conduct in June of this year in satisfaction of all charges. An investigation revealed that from 2006 to 2010 he underreported the number of employees on his payroll as well as his income in order to reduce his workers’ comp premiums. As a result, he underpaid the State Insurance Fund by $31,744. He was sentenced to one year conditional discharge and was ordered to pay the State Fund the full $31,744 in restitution.

Sixteen individuals were arrested in connection with a systematic scheme to steal hundreds of thousands of dollars from five insurance companies: Allstate, GEICO, GMAC, Liberty Mutual and Progressive. Additional arrests are expected in this continuing investigation. Evidence was uncovered indicating that the defendants submitted more than 100 fraudulent claims for vehicles allegedly involved in phantom accidents, costing the insurance companies almost $300,000 in payments for property damage claims in the Bronx. The ringleader of the scheme allegedly recruited most of the other defendants to file fraudulent claims, cash the checks issued by the insurers and turn over most of the proceeds to the ringleader, who pocketed more than $100,000. He allegedly allowed them to keep between $50 and $400 for each claim. It is alleged that in each case, an individual would pose as an actual customer of one of the insurance companies and ask to have an additional vehicle added to an existing policy. Once coverage was extended to the additional vehicle, a defendant would call the insurance carrier and report that the vehicle had been involved in an accident causing damage to another car. A defendant, purporting to be the owner of the allegedly damaged car, would then place a call to the insurance carrier and arrange to have the damage inspected, appraised and photographed by an insurance adjuster. Once the adjuster completed the inspection and appraisal, the insurance company would issue a check payable to the individual filing the claim. All of the defendants have been charged with grand larceny. Some also face charges of money laundering and scheme to defraud.

An investigation by the Frauds Bureau resulted in the arrest of a former New York State-licensed insurance agent. He formed three allegedly bogus business groups and then submitted 35 applications for supplemental hospital insurance policies for 19 applicants through Aflac Insurance Company. However, the investigation found evidence that the policies were written for persons who were either fictitious or were unaware that the policies existed. His actions allowed him to fraudulently collect $4,768 in advanced commissions from Aflac.

Next week’s Blogticles will start to discuss issues regarding year end planning.

We invite your opinions and comments by posting them below, or by calling the Panel of Experts.

Why is this Topic Important to Wealth Managers? This blogticle presents discussion on one area of the insurance world that is often not discussed. Nevertheless, insurance fraud is a real issue that should not be neglected. Not only do clients get caught up in the action but wealth managers sometimes too can play a part. Therefore it is important for wealth managers to stay cognizant of the issue to avoid any illegal or fraudulent schemes.

A Brooklyn woman arrested after a fist fight, a surgeon who made $3.5 million by billing for working more than 24 hours a day, and a Putnam County man who said assailants tied him up and left him inside his burning liquor store.

Those are among the 668 people who were arrested last year on charges related to insurance fraud, according to the New York State Insurance Department’s Frauds Bureau.

The Bureau earlier this month released its annual report for 2010. The report shows that the 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.
• Worked on cases resulting in 449 criminal convictions and led or participated in investigations resulting in 668 arrests, down about nine percent from 2009.

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 by more than 29 percent from 2009.

The arrests included one involving a Brooklyn woman charged with insurance fraud after reporting her car stolen. In fact, it had been impounded by police after she was earlier arrested in connection with shop lifting and a subsequent fist fighting incident.

Also arrested was a Brooklyn surgeon. He was accused of defrauding Medicare and other health care programs of $3.5 million by submitting fraudulent billings. An investigation, carried out by the Medicare Fraud Strike Force, of which the Frauds Bureau is a member, found that he would have had to have worked around the clock to earn the billings.

A Putnam County man was arrested after he told police he was robbed by unknown assailants who tied him up and left him inside his burning liquor store. An investigation found that he had intentionally set the fire in an unsuccessful attempt to collect on an insurance claim.

The Frauds Bureau was established by an act of the Legislature in 1981 as a law enforcement agency within the New York State Insurance Department. The Bureau’s primary mission is the 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.

Tomorrow’s blogticle will present new wealth management ideas for the Second Quarter 2011.

We invite your questions and comments by posting them below, or by calling the Panel of Experts.