Trio of Insurers File Largest No-Fault Fraud Lawsuit in N.Y. History

December 3, 2003

The Allstate Insurance Company, Encompass Insurance and Nationwide Mutual Insurance Company on Wednesday filed a RICO (Racketeer Influenced and Corrupt Organizations Act) action in the Supreme Court of New York against 74 defendants, whom the insurers allege conspired in a vast insurance fraud network involving payments to “runners” to create staged accidents, bribes for fictitious police reports, money laundering, kickbacks for patient referrals, and billing for medical services and diagnostics tests that were never rendered.

The insurance carriers are seeking to recoup more than $100 million in compensatory and treble damages for thousands of no-fault claims paid as a result of the alleged fraudulent network of the defendants.

The filing of the complaint follows on the heels of the recent arrests announced by the Brooklyn District Attorney’s office in September where more than 50 people were arrested as part of the “first phase of ‘Operation Gateway,'” an investigation into an alleged criminal organization that is taking advantage of New York’s No-Fault Insurance Law by falsifying auto accidents. Several of the defendants named in the RICO filing were also arrested for their alleged criminal roles in ‘Operation Gateway.’

The alleged fraudulent activity in the complaint was conducted over the past six years and continues to present. The “Principals” named in the complaint are: Alex Buziashvili, Gary Grinberg, Yuri Grinberg, Lyubov Mirvis, Mark Mirvis, Edouard Rozenthal, Oleg Mirochnick, Yefim Gertopsky, Iosif Dubossarsky and Vladislav Fomenko. The fraudulent activity involves an expanding organization that systematically defrauded the insurers and their customers of millions of dollars per year.

To facilitate the alleged fraud, the Principals created a network of corporate entities comprised of illegally owned medical corporations, which were used to funnel money to dummy management companies that they controlled. The complaint alleges that Brooklyn-based Parallel Management Group served as the centerpiece around which the fraudulent activities revolved and was the center for laundering the proceeds from the illegal medical and management corporations. Through its alleged criminal organization and structure of sham professional medical corporations and dummy and shell management companies, the “Principals” and other defendants used the No-fault insurance system to launder tens of millions of dollars through various entities they owned and controlled.

“A wave of fraud has been unleashed upon the State, insurers, consumers of medical services and the premium-paying public,” said Steve Englert, New York special investigations manager for Allstate. “Insurance fraud is not a victimless crime. It affects every insured driver in New York State. Until we tighten the No-fault laws in New York State, including stiffer criminal penalties, drivers in New York will continue to pay a premium to insurance cheats.”

Complaint unfolds
According to the complaint, the “Principals” implemented their alleged scheme to defraud by buying the use of the names and medical licenses belonging to doctors – collectively referred to in the complaint as “Paper Owners” – who were willing to sell their professional names and the use of their licenses for a fee. It is alleged, the Principals used the Paper Owners’ medical licenses to establish, operate, control and maintain professional medical corporations that operated as medical practices. These were created in violation of New York State Law that requires any corporation that provides physician medical services do so as a professional corporation (“PC”) owned and controlled exclusively by physicians. The practice of medicine by one who is not a physician, as well as the sale of a medical license by a physician, are felonies pursuant to New York Education Law.

“Fraud in New York’s medical no-fault system is a billion dollar business and evidence of fraud and abuse is irrefutable,” said Vince Coyne, special investigations director for Nationwide. “The scope of this problem points to a deliberate, well-organized and sophisticated enterprise that imposes what could be termed an auto insurance “surcharge” on every honest driver in New York State.”

With the sham medical facilities in place, the “Principals” allegedly forged relationships with a syndication of organized “runners” operating on the streets of New York City and neighboring counties and paid cash for the staging of auto accidents and bribing police personnel, typically police administrative aides, to obtain bogus police accident reports. The runners also received kickbacks for directing participants in staged and actual accidents in which the claimants were uninjured to these sham medical facilities, the complaint alleges.

The defendants allegedly used the sham medical facilities to generate excessive and bogus bills for physical examinations, medical tests, medical treatments, physical therapy and expensive neurological diagnostic testing that were never rendered or were medically unnecessary. In addition, it is alleged that the Principals created a massive and illicit kickback scheme involving other healthcare providers who could generate additional billing.

In exchange for kickbacks, the illegal medical facilities manufactured fraudulent and/or forged medical narratives, reports and made referrals, which the complaint alleges they sold to other healthcare providers who fraudulently billed for, among other things, chiropractic treatment, MRIs, X-rays, psychological evaluations and medical supplies. In these and numerous other ways, the Principals are alleged to have sought to deceive insurers into paying fraudulent medical claims that typically reached or exceeded $8,000.00 per patient.

In addition, to further bilk the No-fault insurance system, the complaint alleges the Principals even created a transportation company to bill for ambulette and transport services provided to claimants who treated at their sham facilities.

While the New York State Court of Appeals decision upholding Superintendent Serio’s promulgation of Regulation 68 is an important and positive step toward deterring fraudulent activity, additional legislative actions are needed. Several bills, either before the legislature or often-debated in Albany, could significantly relieve the burden on New York drivers. These measures include:

— a “runner’s bill”, already passed by the Senate, which would make the practice a felony offense;

— a decertification bill, which would strip doctors who unscrupulously sell there medical credentials for profit of their medical licenses;

— medical protocols, which would set standards for treatment of soft tissue injuries;

— mandatory arbitration for disputes involving first-party no-fault claims;

— increased criminal penalties for committing insurance fraud, and allocation of

— additional funding for investigation and prosecution of insurance fraud.

Enactment of these measures would go far in addressing the rampant fraud and abuse in the no-fault insurance system.

On Nov. 21, Allstate also filed a $21 million civil in the Supreme Court of New York against a no-fault insurance fraud network that allegedly conspired to defraud Allstate through fraudulent billing practices.

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