This is one of many fictionalized true crime stories about insurance fraud from an expert that explains why insurance fraud is a “Heads I Win, Tails You Lose” situation for insurance companies. The stories help understand how insurance fraud in America costs everyone who buys insurance thousands of dollars each year and why insurance fraud is safer and more profitable for the perpetrators than any other crime.
Watch the full video at https://rumble.com/v277m68-how-russian-immigrants-became-rich.html and at https://youtu.be/Vc7hmEuzBnY
People who commit insurance fraud as a profession do it because it’s easy. It requires no capital investment. The risk is low and the profits are high.
The ease with which large sums of money can be made from insurance fraud removes any moral qualms that might prevent the perpetrator from committing the crime.
The temptation to do everything outside the law was the downfall of the Brothers Karamazov. The brothers had escaped from prison in the old Soviet Union by immigrating to the United States. In their hometown of Volgograd, they were well known to the local police. The brothers had been carrying out a crime spree in the city since they turned ten. They were involved in burglary, armed robbery, smuggling, drug trafficking and prostitution.
To avoid arrest and a long sentence in a Siberian Gulag, the brothers invented a Jewish mother. They were then entitled to leave as victims of religious persecution. Their application for visas to the United States as seekers of religious freedom was immediately accepted. The organization “Save the Soviet Jews”, which knew nothing of their criminal background, financed their trip to the United States.
Upon arrival in the United States, they met acquaintances from the Soviet criminal class who had also escaped to the United States. They were told that the police were quite effective at catching and prosecuting strong-armed criminals, but that they did not care about fraudsters.
The brothers, who were dedicated criminals, realized that they had to become familiar with the American language and American procedures. They spent their first year in the United States living off the money they could smuggle out of the Soviet Union. They studied English and American business processes at a local high school. One of their EFL classmates was a salesman for Blue Sword of California, a health insurance company. They bribed their classmate to sell them health insurance so they could learn how the system worked. The brothers were pleasantly surprised to learn that if they sent a bill from a health care provider to Blue Sword, a check for the same amount would arrive in the mail. No one would call the provider or check that the services had been performed. All they needed was for the form to be filled out correctly.
From what they learned in their business class, they created their first business entity, Mobile Medical Services. The filing of a fictitious business name showing that the Karamazov brothers were the owners of Mobile Medical Services was enough to put them out of business.
The plan was simple:
- with money obtained from a Small Business Administration loan fund set up for recent immigrants, they would lease a Ford Econoline van; they would then rent various pieces of medical testing equipment from local suppliers.
- The fact that they had no experience or training in the operation of such equipment was irrelevant. All that was needed was for the equipment to look right. They immediately received a loan from the SBA to pay the first three months’ rent.
- They visited their local fast print shop and had a flyer printed with the most seductive of all advertising tools.
The flyer just said in forty point type:
FREE MEDICAL TESTS
and in much smaller type:
Only for union members and government employees
They then parked their van in a local grocery store parking lot and waited for customers to enter. Each person who came in for free medical tests would fill out a form and assign all their medical benefits to Mobile Medical Services. They would sit on an EKG machine, be weighed and have their blood pressure measured. They would then be sent away.
The Brothers Karamazov created a completely fictitious account of the medical tests performed on each of their incoming clients. All of their clients had insurance or were military dependents covered by the CHAMPAS scheme. The invoices were created with the help of their classmate, the insurance agent, and averaged between $800 and $1400. Each was motivated by a diagnosis of one serious illness or another, ranging from pneumonia to cancer.
The brothers sent their invoices directly to the individual customers’ insurance companies. The billings were normally paid without question, although the insurance companies would reduce the billed amounts by 20% to 30%.
Every other month, the brothers would file for bankruptcy on the fictitious business and return the equipment to the lessor who knew better than to make a claim on a bankruptcy estate. The landlord’s investigation revealed that the original business had disappeared and that its owners lacked assets. They would write off the debt.
The brothers would then start a new LLC using a typist and go to another leasing agent who would find them new equipment.
During the first two years of their fraudulent operation, the brothers had managed to achieve a gross profit of $5,000,000 per year. They had twenty mobile vans floating in the states of California, Arizona, Nevada and New Mexico. Their profits grew exponentially.
Each van was insured. When a landlord was close to repossessing a van or its equipment, it would accidentally catch fire on the highway. The brothers would recover the full value of the equipment and the van. The tenants, who are not named on the policies, would be without recourse.
Had the brothers, from their generous incomes, honestly purchased the medical equipment and vans, they would probably still be making millions from health insurance fraud. The adjuster assigned to investigate the “accidental” fires had attended a class on arson given by the California Conference of Arson Investigators. It became clear that the van fire was an arson. He reported this fact to the Fraud Division of the State of California, Department of Insurance and to the local fire department’s arson unit.
The insurer retained counsel to examine the brothers under oath. They refused to testify. Their claim was denied because an examination under oath is a condition precedent to insurance and violation of that condition eliminates coverage. The brothers did nothing to pursue their claim, they just moved on to another insurer.
In the fraud department, when the fire was logged into the computer, it noted four other reports about the brothers. It turned out that they were not related, but an investigator was assigned to investigate the Karamazov brothers.
As the investigation progressed, the Fraud Unit learned more facts about the brothers that required a team of Fraud Unit investigators. They were joined by investigators from the United States Postal Service. The team worked for three years to develop a case against the Karamazov brothers. By the time the charges came down, investigators had determined that the brothers were involved in fraud totaling over $80,000,000.
Before they could be arrested, the brothers returned, rich, to Russia. They were sure they had pulled off the scam of the century. When they returned to the former Soviet Union, they lived like kings. They considered themselves inviolable.
Confident of their skill as criminals and tired of living in the Urals, they took a vacation to the south of France. When they arrived, their names were noted by INTERPOL who contacted the United States Marshal Service at the US Embassy. The brothers were arrested and extradited to the United States with the blessings of the French government.
The trial, in United States District Court, Los Angeles, was lengthy and involved the brothers and dozens of their co-conspirators. Two of the brothers pleaded guilty and one was convicted after the trial. They are all serving time in a federal prison. They have been ordered to make restitution and pay huge fines.
The chances of the insurance companies ever getting back any of the $80,000,000 to $2.3 billion they admit they stole are slim to none. Whatever remains of the assets they took with them to Mother Russia are well protected in banks in the Cayman Islands and Switzerland.
For the Karamazov brothers, the extent of their greed was their undoing.
Crime paid very well for three years and now they pay for their crime in the federal penitentiary knowing that when they are released they will still be rich because the US government could not trace their assets.
This story is one of more than 80 fictional stories of true insurance fraud crimes and has been adapted from my book Insurance fraud costs everyone Available as a Kindle book and available as a Paperback from Amazon.com.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
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Barry Zalma, Esq., CFE, now limits his practice to serving as an insurance consultant specializing in insurance coverage, insurance claims management, insurance bad faith and insurance fraud for insurers and policyholders alike. He practiced law in California for more than 44 years as an insurance coverage and claims attorney and more than 54 years in the insurance industry. He can be reached at http://www.zalma.com and firstname.lastname@example.org
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