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THURSDAY, MARCH 10, 1994
By Steve Pastis
5:00 a.m.: Driving up the Santa Ana Freeway from Orange County, I start wondering what is about to happen on this insurance fraud bust I have been invited to watch. Lately, I learned a great deal about insurance fraud, but today I’m going to get a – please pardon the expression – crash course.
5:53 a.m.: While sitting in the lobby of a hotel in Los Angeles, I overhear my name in a conversation at the front desk. There I meet Henry Avina, a Supervising Criminal Investigator with the California Department of Insurance. On the way to his car, he introduces me to Gary Hernandez, the DOI’s Deputy Commissioner and Chief of Enforcement.
6:04 a.m.: The sun is coming up and I am interviewing Hernandez for another article. Avina is driving and we are heading up to a home in Granada Hills for an early morning raid.
“Today we have two cases occurring, entirely different from each other,” explains Hernandez. “One involves auto insurance fraud and the other is a workers’ comp case. The workers’ comp case is a search warrant execution at a total of 42 different locations. The auto site is a staged accident ring that’s been running the same cars through multiple accidents – where they buy a car and get it insured four, five, six times – and then they stage an accident and run it through a body shop. In that case, we’re going to be arresting about five people for that activity.”
Hernandez outlines the morning schedule as he hands me memorandums on the two cases. The first stop would be a 7:00 a.m. auto insurance fraud bust. Avina says that the auto fraud case has claims “going back to 1987.” I ask how the investigation process begins and progresses.
“The primary way that we begin our cases is when a company brings a claims pattern to our attention that is suspicious in and of itself,” responds Hernandez. “We rarely stumble into a fraud on our own. Ever since 1979, we’ve had an insurance fraud information system that now tracks upwards of 72,000 suspected fraudulent claimants and others, such as medical professionals and lawyers. We track any type of claim that comes up with their names in it. It all goes into this computer system. In this particular case, we became aware of the case through the insurers bringing it to our attention through suspected fraudulent claims. We bring our own undercover investigators into the operation to try to infiltrate the ring.”
Susan Mustaffa, formerly of the California Highway Patrol, and now of the Department of Insurance Fraud Division, was the criminal investigator who infiltrated this alleged ring. The National Insurance Crime Bureau approached her with information about an individual who had “submitted three fraudulent, duplicate property damage claims concerning the same vehicle,” according to a department memorandum. “Further investigation by this department revealed additional suspects who had made approximately 40 property damage claims to various insurance companies.”
The suspects would purchase automobile insurance, usually for a period of two months, and within three to four weeks of obtaining the insurance, would make hit-and-run claims for property damage, according to the memorandum. The majority of the vehicles were taken to Brother’s Body Shop in Los Angeles.
6:40 a.m.: We drive by the house where the raid will be taking place. The house is a typical middle class San Fernando Valley home. Avina points out the parked car where an investigator sits where he has been watching the house since “probably five in the morning.” There is a van parked in front of the house – also with someone in it. Concerns about the van are relayed over the radio. The van drives away a couple of minutes later.
“The other investigators are about a half a mile from here,” reports Avina. “That’s where we’re going to meet all of them right at about five minutes to seven to make an assessment of the property and decide where they’re going to go in.”
“It is a massive undertaking when making arrests or executing search warrants in the organized rings in any of these cases because the execution has to be simultaneous,” explains Hernandez as we drive to meet the others. “Right now we’re doing five arrests. Generally, there are three officers per person being arrested. Everything is being coordinated over the radio waves right now. There will be a ‘Go’ signal given when everybody goes in. The purpose of that is so the suspects can’t contact each other and begin fleeing or destroying evidence in a search warrant case. Everything is executed at the same time and it’s a pretty amazing undertaking because of the coordination that has to go on to make sure that nobody jumps the gun.
“If for some reason, all of the sudden, a suspect was fleeing prior to the ‘Go’ signal, we would effectuate the arrest and everybody else would be directed to go in also. We’ve had many situations where people will then start contacting other known suspects in the ring and people will start fleeing.”
I take out my camera and ask what limitations there are on the pictures I take. “You can take pictures of anybody you want to as long as you black out the officers’ faces,” Hernandez responds. I am told, however, that I can’t enter the house.
“These arrests are meaningless if we don’t get the publicity,” Hernandez says. “If we can’t send a very strong cohesive message to the perpetrators that are out there that we mean business, then we really shouldn’t even be out here at all. We’re doing as much as we can for the deterrent factor.”
6:55 a.m.: We pull into the parking lot of a Ralphs Market where there are several people wearing blue jackets with the word “Police” on the back. Others, from the Department of Insurance and Los Angeles County District Attorney’s office, are wearing suits. A police car drives up. This raid is clearly a joint effort.
There is an almost-empty box of doughnuts on the trunk of a car. “What would an arrest be without doughnuts?” Hernandez jokes. I take the opportunity to talk with Investigator Mustaffa about her role in the raid.
“The case first came to our department almost two years ago, April of 1992, from NICB,” she explains. “They had gotten a referral from State Farm about one claim. They somehow discovered that their insured had two more claims that were similar, so they referred the claim to us. We just started investigating the names that were in that file and started contacting other insurance carriers. Then we’d find another name and another name, and the first thing we knew we had approximately 40 claims that were all property damage claims where there was a parked car that was hit by an unknown vehicle. The insured would make the claims on the property damage and there were never any witnesses and the claim was paid within days.”
Wasn’t the investigative work done with computers?
“No, it was pretty much us randomly calling Farmers, State Farm, Aetna…” she says as she notices that the others are getting back into their vehicles. “That’s basically how we did it. We are suspecting that there’s a lot of claims that we don’tknow about only because there’s about 1200 insurance companies inthe state and we haven’t been able to contact all of them. We’ve got to go now…”
Avina is busy on the radio in our car as we drive back to the residence. Those who would be entering the house meet in front of a residence a few doors down. Concerns are expressed about a pick-up truck with two men in it that seems to be following us. “It may be one of us,” Avina says, but he calls for verification. The “I don’t know” that serves as the radio response is not comforting. It is decided to “keep an eye on them,” but the truck slowly drives away.
7:05 a.m.: The raid is on. Most of the investigators quietly run to the front door while others wait by the back door. I am told to stand behind a car parked on the street where I’ll be safe “just in case.” I ask an attorney from the DA’s office if the occupant is the “ringleader”?
“I wouldn’t designate him as anything like that,” he replies. “We don’t know how big this is. This is one of the target suspects.”
I inquire about the other raids going on simultaneously. “The arrest of a number of other parties that were involved and the owner of an auto body shop,” is his response. How many other raids are going on? “I can’t comment on that. I don’t think that anybody’s at liberty to tell you that exact number at this moment.”
The suspect, Eduard Mochman, is at home at the time of the raid with two females, presumably his wife and daughter. “He’ll be coming out in a few minutes,” says Avina. “They’re explaining to him what the arrest warrant is for.”
“Right now, if everything went right, there were five arrests that just happened throughout L.A. and 22 simultaneous searches are going on,” Hernandez says. “Tomorrow there will be another 20 banks that we’ll search. We’re also arresting the head of the auto body shop right now. Since these insurance companies aren’t linked up, they don’t know that they’ve insured and reinsured a car five different times and they would pay claims on the policies. It’s a real common type of fraud. If the damage is not great enough to warrant a physical inspection by the company, they’re going to pay the claim. And they would damage the cars. They would damage it once and then one day you have a company come in and adjust the claim and the next day you’d have another and so on and so forth. And then you’d cash these multiple checks made out to this guy.”
Now that the arrest is made, Hernandez and Avina take their coats off and get back in the car. “They’ll be here for hours just searching,” Hernandez says. He discusses the problems of conducting searches and making arrests.
“One of the biggest misunderstandings that we have with working with anybody from the industry is that their perspective is from the civil law side, where you file a case and then you do your discovery. At the point where we are ready for arrest, our case has to be made. There is no more real discovery, except for the search warrant phase. When we go to arrest somebody, we have to be ready to try them. Technically, it’s within a few days of the arrest, but it could be as soon as the day you arrest them. People don’t understand that. The one message we like to make clear, particularly to the industry, is that these things do take time. A lot of folks can’t understand why, when they know they have a fraudulent claim, ‘Why does it take you guys so many months to do something about it?’ Well, we’ve got to build our case.”
“We figure that roughly $300,000 was paid to these suspects in fraudulent claims and each claim that they brought was approximately $7000,” says Avina. “The maximum penalty for insurance fraud is five years. There is an adjusted maximum for the same crime.” He figures that Mochman will get eight to ten years.
Others arrested in the raids include, Yury Mochman, Leonid”Lenny” Kreymer, Zyama Gutin and Gennady Volynsky. We drive to Brother’s Body Shop, which is owned by Kreymer and was the site of another 7:00 a.m. raid.
I learn that I’m not the only observer of the Department of Insurance fraud-fighting efforts that day. Representatives from the Legislative Analyst’s Office and the Department of Finance are also learning about the DOI. “We’re trying to give them exposure to the kind of work we do,” Hernandez explains.
9:10 a.m.: We arrive at Brother’s Body Shop with the expectation that we will find damaged Jaguars, Saabs and Volvos. We are not disappointed. A group of investigators is there searching the shop as we arrive and they discuss their progress with Hernandez and Avina. A Saab has rear end damage and I am told that the “unlucky” car had the same rear end damage before. There is a list of insurers on the wall of the shop’s office indicating which companies may not be solvent. The printed list has handwritten updates.
10:02 a.m.: We leave to check on the progress of the workers’ compensation fraud investigation at a law office.
“This is the second time that we are going to this law office.” says Avina. “The first time we did a search warrant, in 1993, we found evidence that they may have been involved in insurance fraud as it applies to workers’ compensation. As a result of the search warrants, we were able to obtain lists of literally thousands of patients that we were unaware of. So today, part of the search will consist of obtaining several thousand files from the law offices. We will also be searching the clinics that treated those individuals the rest of the day and tomorrow. As a result of these search warrants that we’re serving now on these 40 locations, we expect to find evidence of at least, and this is my opinion, of at least 100 additional suspects involved who deal with this group of about 25 to 30 individuals.”
So how much money did this alleged workers’ compensation fraud cost insurance companies?
“At this point, we can only say it’s in the tens of millions of dollars, but we’re really just touching the tip of the iceberg in this particular investigation,” replies Avina. “The investigation that occurred last month, with a group of doctors and an attorney, we estimated to be close to $300 million, based on the operation, witness interviews, suspect interviews and based on what they told us and how long they’ve been in operation.”
“Just to put it into perspective, under current funding, we have in workers’ comp approximately 400 open cases that we’re pursuing,” adds Hernandez. “This action, the execution of these search warrants, is only one of those 400. There are many, many cases that are just as big as this. We have 600 open auto cases and today’s was just one of those. We’ve been responsible for shutting down and arresting about $100 million a year.”
10:30 a.m.: As we arrive at the law offices, located on a busy street lined with Hispanic businesses, there are about 15 investigators searching files. Some are wearing police jackets and others are dressed in street clothes. Boxes of files are being prepared for shipping back to the Department of Insurance offices in downtown Los Angeles. This part of the investigation is the most tedious and time consuming, but it has to be done to make a case. It is also very valuable as a source of leads.
“Generally, search warrants will lead us to other evidence which may implicate other suspects in a ring like this,” Hernandez says. “Every time we do an arrest like this in a major search warrant action, like a workers’ comp case, it has a chilling effect sent out to perpetrators that are out there. In fact, we’ve had instances where we will do a major action that involves the searching of medical professionals’ offices and the searching of law offices and, for the next few days, in
completely unrelated cases, some of our undercover operations are jeopardized because people get nervous. Other lawyers and other doctors, where we have undercover investigators, start to tighten up. They’re not as free with their information and they stop taking claims for a while. The public announcement of this arrest is enough to stop other crimes from actually being committed.
“Under most law enforcement activities, you rarely read about the execution of a search warrant,” he says. “The Commissioner has encouraged us to publicize search warrants to act as a deterrent effect for other perpetrators that are out there. Today there will be a press conference. We don’t get nearly the amount of coverage that we would like to get.”
2:15 p.m.: California Insurance Commissioner John Garamendi appears at a news conference at the Department of Insurance offices in downtown Los Angeles. There are cameras from local television stations and reporters from radio stations and newspapers. A press release on the arrests had been issued by both Garamendi’s and Los Angeles County District Attorney Gil Garcetti’s offices by noon.
At the press conference, Garamendi praises the efforts of his department and promises more similar raids will be made. Hernandez and Avina are also at the podium.
The efforts of the California Department of Insurance on Thursday, March 10, 1994, were covered in The Daily News. The Los Angeles Times, however, did not run a story on the DOI in their Friday edition and most of the stations represented at the press conference chose not to broadcast news of the insurance raids.
© Copyright 1994 Alikim Media