Copyright held by The John Cooke Fraud Report. Reprint rights are granted with attribution to The John Cooke Fraud Report with a link to this website.
By Leslie Kim
Human nature demands that we know how things work. High-schoolers dissect frogs; pre-schoolers take apart their toys; shoppers look inside of everything. We are a society that has the need to know ingrained in our very beings.
Organized insurance fraud … Russians … how does it all work. A recent case, one still ongoing and wide open, affords an opportunity to examine some of the integral mechanisms of the crime.
From the “Arrests Begin in Accident Insurance Scam” headline which recently told of a Louisiana fraud-ring bust, we now know that organized Russian insurance fraud has infiltrated communities throughout the US. While the initial bogus claims may have been confined to Southern California, that is no longer the case. There’s big money in fraud and past geographic boundaries have crumbled. Big cities; little towns; back streets; highways. It’s the 4-wheeled mafiosa of the 90s.
One of the latest chapters in interstate organized fraud began about two years ago when Trey Whitworth, a police officer in Irving, Texas, began to see a pattern of activity on area freeways. As an accident investigator, Whitworth recognized that the pattern he saw pointed to a staged-auto accident ring. Because of the players thought to be involved, Whitworth began to work with the Metro Alien Task Force (MATF), a group that included representatives from the Secret Service, the Dallas Police Department, the Irving Police Department, the Internal Revenue Service and the Federal Bureau of Investigation.
Initial investigative efforts revealed that many of those thought to be the prime players were new to the state of Texas. In too many cases, the attorneys and their office personnel, as well as the doctors and their medical clinic personnel, had previously lived in California.
Whitworth found it curious that many of the attorneys representing claimants who were allegedly injured in questionable freeway accidents were actually not licensed to practice law in Texas. Instead, using a special power of attorney form, California attorneys were opening law offices throughout the state of Texas. It was done in a fashion similar to that which F. Lee Bailey might employ in order to facilitate a one-time representation of a high-profile defendant in a state where Bailey is not directly licensed to practice law.
A general call for assistance went out, “The Dallas area freeways are showing indications of organized Russian automobile insurance fraud. Can anybody out there help us?”
At one of the first-Thursday-of-the-month lunches hosted by the Southern California Fraud Investigators Association, the plea made by Whitworth was read aloud to the assemblage. The information struck an all-too-familiar chord with one SIU manager. He initiated a telephone call to Irving, Texas. “I may be able to help you. Let’s talk…”
Dan Brogdon, a 29-year veteran of the Automobile Club of Southern California (ACSC), was a perfect fit for the Texas efforts to put a halt to the flood of fraudulent claims. Integral to the highly successful Med-Law Project, Brogdon instantly recognized many of the characteristics in the Texas scam as those he’d helped to identify in the California scene. At first appearance, it looked like many of the same players under investigation in the Golden State had relocated – almost overnight – to the Lone Star State and set up shop.
Brogdon’s first action was to suggest that Whitworth contact Detectives Jim Miller and Michael Hohan of the Combined Medical Insurance Fraud Task Force (CMIFTF) under the direction of the Los Angeles Police Department’s Organized Crime and Intelligence Division. The CMIFTF members were recognized experts in the phenomenon of staged automobile rings and they would be the ones who could determine what, specifically, the Texan authorities were dealing with.
Suspicions of a highly organized Russian fraud ring were quickly confirmed. Having learned from their California mistakes, however, the powers behind the ring were incorporating methods into their day-to-day operations that made detection increasingly difficult.
Scott Shaw, an investigator with the Los Angeles area firm of Shaw, Segraves & Associates, teamed up with Brogdon and headed down to Texas. Shaw, Segraves & Associates had been deeply involved in the ongoing California investigation of Russian staged accident rings for the Automobile Club and Shaw jumped at the opportunity to interview some of the initial informants developed in the Texas investigation.
“It was evident that (they) had learned from some of their mistakes in California,” said Shaw. “The cappers and runners recognized, for instance, that the two-car accident with one carload of Russians slamming into another carload of Russians was not going to work. To allay adjuster and investigator suspicions, it was now a car full of Russians being broad-sided by a car full of Hispanics. And it was not unusual for one of the vehicles to be occupied by a family, including small children. After all, what kind of a mother and father would ever purposely have an accident with their children in the car?”
While the old stand-by Swoop & Squat was often employed, new variations had rapidly become standard fare. The “Box” generally involved three cars – in addition to the victim – although in certain traffic situations, it could be executed with only two other vehicles. The intention was to trap a victim’s vehicle in such a way that escape was impossible.
Companies were often quick to settle in Texas, in part because they were at first not familiar with staged-accident scenarios and in part because bad faith in Texas could be pursuable in both first and third party actions. In fact, prior to 1995, every accident report had a stamp on the back of it that said, “Do you want to be solicited by an attorney?” It was a fully stocked shark pool with an ongoing daily supply of bloodied meat: a perfect hunting ground for the greed-hucksters of Southern California to infiltrate.
The task force investigations continued. Brogdon and Shaw gave a crash course (sic) in staged accident rings. Where information had initially trickled in, it began to flood. With the assistance of the seasoned California investigators, a massive puzzle began to take shape, revealing a level of corruption that soon reached into another dozen states.
The “Dynamic Duo” sat down with the MATF and provided examples of how California and the federal authorities prosecuted insurance fraud, including the more recent Med-Law indictments. The Texans were willing and able students. They listened intently, read everything and then applied it to their own situation.
Brogdon, speaking on behalf of the Interinsurance Exchange of the ACSC, said, “While we don’t work directly with other carriers, we do share certain information within the confines of the various insurance codes. Our business is in the handling and settling of legitimate insurance claims and protecting the interests of our members and insureds. Thus, our SIU conducts a very thorough investigation and it is the product of that investigation which gets passed on to law enforcement, again pursuant to all applicable codes. The proper agencies can then continue into the prosecutorial stage.”
Part of the Shaw, Segraves & Associates earlier investigation conducted on behalf of the ACSC was to identify if an organized ring was in place. They called it a Profile Review and when explained to the MATF authorities (Whitworth, Secret Service Agent Scott Donovan and FBI Agent Parks Stearns) the same protocol was agreed upon and instituted.
When a ring is suspected, a red flag review is initiated. Many defense players are brought into the loop: adjusters, special investigation personnel, the defense attorneys and the outside investigators. The situation is examined with a step-by-step approach. Is there a problem? What is the scope of the problem? What are the immediate goals? What steps are needed to accomplish those goals?
One of the steps that is necessary to accomplish the goals is an extended effort to identify the legitimate claims and deal with them on a case-by-case basis.
“In many cases, the claimants may well also be victims,” says Shaw. “With auto insurance being so lucrative, cappers and runners often encounter a legitimate accident, where people are really hurt, and convince those people to enter the medical/litigation system. So here we have a real case of injury and a real case of liability, but it gets muddied by massively escalated medical treatment intended to build the eventual settlement value of the claim. Does the insurance company owe those people money? Yes, but how much is their actual claim really worth and how much has been built onto that claim by unethical medical and legal professionals?”
Each claim must be thoroughly evaluated according to its own merits. Hopefully, such a system identifies those claimants who are inadvertently caught up in the ring’s operations and they are dealt with fairly, receiving offers of compensation in line with the true value of their claims.
In cases of suspected organized ring activity, extensive computer record searches are utilized. The fraud organization chart may be used as a pattern and the various players are fit into the chart via the discovery process. The attorney, for instance, will have his licensing checked and all addresses will be entered into the flow chart. The same thing happens to the treating medical doctor or chiropractor. Additionally, checks will be run on all other professional licenses, property owned, UCC filings, assumed names and fictitious business names permits. These searches may be extended to include all people shown at the same address – and the results are sometimes fascinating.
A questionable doctor may show an address that crosses with the addresses of three other individuals. One may be the doctor’s spouse who may have licensing or holdings in another name. The brother-in-law may turn out to be the owner of a check-cashing service tied into the ring’s activities, and the sister may be the person who filed for the fictitious name on the translating service that was used. Later, running the other names separately can produce a myriad of other addresses, and each of those may hold added surprises.
Consider the case of Michael Rappaport, a financier arrested in Texas by the MATF and in California by Operation CONLAW (a joint operation made up of local, state and federal law enforcement authorities as well as the NICB) in what appears to be the first wave of arrests. Checking corporations and fictitious name statements revealed that he owned a clinic in Hollywood as well as a pawn shop in West Hollywood. Most any investigator would consider this information to have interesting ramifications. According to California Department of Insurance investigator Keith Schoda, this ring was responsible for “millions and millions of dollars” of suspected fraudulent claims. California’s Operation CONLAW is continuing to investigate suspicious claims under the direction of Deputy District Attorneys Loren Neiman and Elliot Fisher.
There are those who think the Russians involved in organized crime are easier to track via computer than other ethnicities because of an assumed arrogance. Why shouldn’t I put things in my own name? They’ll never be smart enough to catch on…
The procedure defined begins by applying all the public records information to the pattern already established. The information is then disseminated to attorneys charged with defending the insurance carrier in suspected fraudulent actions. By handing the information over to defense attorneys, the adjuster has full access to it, but it is also not readily discoverable because it is attorney work product.
The information is then dispensed to law enforcement pursuant to all applicable codes. In most states, this translates to the Department of Insurance or the National Insurance Crime Bureau.
Once the players are identified, the interview process starts.
And then the fun begins…
Criminal communities are often tightly knit … and loyalty often stops short at the jailhouse door. Roll-overs are common on the lower levels of the organization; the guy who works at the body shop will easily give up someone slightly up the chain if it means the difference between a probationary sentence and hard jail time. The body shop owner quickly finds out he’s been implicated and he doesn’t want to go down the river alone either. Not uncommonly, knowing he’s next in line for questioning, he picks up the phone and offers to give himself up for questioning. And guess who he offers up to the authorities?
Up the chain it goes; on some investigations the criminals take the initiative to give themselves up in waves and the authorities have a minimum of chasing to do – as evidenced by the New York property insurance scandal that’s yielded arrests into the hundreds and is still not over.
The questioning is done predominantly through sworn statements, EUOs and depositions. “It’s very time consuming and expensive,” says Shaw, “and it’s very important to have people involved in the process who have enough expertise to differentiate between a business relationship in 1985 and an organized insurance fraud ring operation in 1996. When it comes to naming individuals in indictments, one ‘aw heck’ can wipe out a whole lot of ‘atta boys.’”
When Whitworth divulged the names of those involved in the suspected Texas operation, they were all too familiar to Brogdon and Shaw. Names like Michael Rappaport, Alex Motamedi and Amir Zamyed surfaced. Many of the peripheral players rang a similar bell. Texas had been run over by a California crook truck – one with plenty of miles on its odometer.
Between August and November of 1995, the phones and fax lines between Texas and California were lit up into the wee hours of the night. In early 1996, the first wave of indictments and arrests sparked a renewed effort to find the tail end of the Russian dragon. The chase led into Arizona, Nevada, Louisiana, Washington, Oregon, Florida, Kansas, Virginia, Illinois, New York, Pennsylvania and Canada. Most any city large enough to support a Russian ethnic area was also large enough to support a network of fraud artists to prey upon the community.
The investigation is continuing; in fact, its scope grows larger by the day. A part of this may be due to the mind set of some of the participants. Some individuals who have emigrated from Russia have a base mentality unlike those of us who’ve had the good fortune to grow up in a democratic society. Alexander Gorkin, owner of the Moscow-based security firm Unifile, Inc., says that American investigators should strive to understand the cultural differences that come into play. “Crime, per se, carries little moral stigma; some things that Americans define as criminal and morally condemn, are simply a way of life in Russia. Extortion, for instance, may be just another way of doing business, acceptable to the masses in much the way Americans have learned to accept the concept of taxation. You may not like taxes, but they are part of the system you live in. Insurance fraud is simply a form of business to the Russian, enriching those who play the game well and throwing those who make errors – or bad business decisions – to the dogs of enforcement.”
The Russians are smart; to survive, they have had to be. They work well – for business and the acquisition of money – with the Filipinos, the Hispanics, the Iranians, the Bangladeshis, the Asians and most anyone else involved in the organized perpetration of fraud.
Most importantly, they are quick studies when it comes to our insurance system. Instead of having four plaintiffs, they may claim only two injuries out of four occupants. This, to some adjusters, legitimizes the claim. How can it be insurance fraud if only half the people in the vehicle are hurt? Or there may be other reasons not to suffer an injury; the driver may claim to be uninjured because he is named in another claim just a few days earlier and the law office is fully cognizant of our index capabilities. They know that non-injured claimants are not indexed!
“Bring me an accident that I can get past the adjuster,” is what the financier may say to the capper or runner. “So the case does not appear suspicious, change the nationalities and the age group of the people involved. Let’s have two Asians and their Hispanic friend in one car – and they will collide with a second car with a Russian mother and father in the front seat and their two children and a 70-year-old grandmother in the back seat. Who could suspect such a thing?”
And where to find a family willing to participate in such a claim? Money talks. At $250 per person, per accident, the $1250 realized by that family may be the difference between eating and going hungry, living on the street or paying the rent on an apartment.
Red flag lists are no longer secret. The organized rings have them atop their desks just like the insurance company adjusters have them. They may use them as guides of what not to do, just as we use them as guides of what to look for. And our accepted standard methods of investigation must also evolve and change with the times. No longer can we afford to follow a set list, never varying from case to case.
Instead, each suspicious claim must be investigated according to the specifics of the case. Joe Serio, the Moscow operative for Kroll Associates who has recently returned to the United States to write a book on organized Russian crime, wonders why the investigative community usually halts an investigation of Russian immigrants involved in insurance fraud at the US borders? “Under the Communist Regime, government knowledge of each individual’s every move was absolutely necessary to maintain full control of the society. The Russians instituted an Orwellian Big-Brother system capable of tracking people, relationships, occupations, affiliations – absolutely every facet of day-to-day life. Such records still exist, yet it is the rare investigator who can envision the benefits inherent in continuing his investigations outside of the US.”
Is this a step we want to take in every single case? Hardly. But in some investigations, especially those suggesting organized crime syndicates, it makes the utmost sense. Is it a wise investigator who pulls the exact same three searches – and only those three searches – with the same data provider on every single SIU file? Of course not.
Perhaps Shaw sums it up the best when he says, “As an investigator, you’re only limited by your imagination. As long as it’s legal, never be afraid to try new avenues of investigation.”
Investigators working cases of suspected organized Russian crime, can contact any of the following:
CONLAW c/o Keith Schoda, (213) 278-5000
MATF c/o Scott Donovan, (214) 868-3200
CMIFTF c/o Los Angeles PD, (213) 485-5201
Scott Shaw (818) 713-8174
Dan Brogdon (213) 741-3422
Joe Serio (516) 481-0470
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