Geeky financier revealed fraud oversight oversights

Fraudster ruined insurers; stress test hardened insurance oversight

One of the most tumultuous periods of insurance and securities oversight quietly drew to a close recently when convicted swindler Martin Frankel finished his 17-year federal sentence.

The geekish financier recently was released from federal prison in New Jersey. He’s in a transition facility, prepping for life back on the streets.

Frankel sent shockwaves through the securities and state insurance systems. He launched a daring swindle that exposed large gaps in how states oversee insurance and protect against scams.

He secretly bought several small, ailing life insurance companies back in the 1990s. Hiding his ownership, Frankel looted more than $200 million of their assets and hid the money in Swiss bank accounts. He ran the insurers into the ground. Several hundred innocent employees lost their jobs and livelihoods.

It’s one of the largest insider lootings of insurers in history.

He hid the conniving from state regulators for a decade. Frankel had been banned from securities for bilking investors. Yet incredibly, he next created an investment firm called Thunor Trust as a front for his looting. Yet state insurance regulators had no idea a crook was brazenly doing insurance business.

Frankel lived a princely lifestyle off the stolen insurance loot. He bought a 25-room mansion in swanky Greenwich, Conn. A bevy of live-in girlfriends kept coming and going. Frankel showered them with diamonds, trips and other goodies, while stabling a fleet of 30 luxury cars. By day, he did business in an onsite NASA-like command center with 80 computers and widescreen TVs.

Mississippi and Tennessee insurance regulators finally got wind of Frankel’s maneuvering and busted him.

He tried to burn down his mansion to hide the evidence as law enforcement closed in. Officials found a partially burned to-do list: “Launder more money NOW.” Frankel fled to Europe and was captured in Germany. He had nine fake passports and 547 diamonds.

Frankel even bribed a Vatican official to vouch for a false charity he’d set up to hide his conniving.

The scheme exposed widespread shortfalls in how securities and insurance regulators oversaw such entities.

Call the problems oversight oversights.

“We found inadequate tools and measures for assessing the appropriateness of insurance company purchasers, analyzing securities investments, evaluating the appropriateness of asset custodians, verifying insurers’ assets, and sharing information within and outside the insurance industry,” the feds warned in a report.

Major reforms and stricter oversight went into place. Future Frankels will have a much harder time operating the way he did. Certainly the insurance system is better equipped with tripwires to expose such cons earlier in the game.

On the cusp of freedom, however, Frankel was packed off to jail again this week. He’s already charged with unspecified rules violations.

Whatever. Marty Frankel still did regulators a backhanded favor, putting the systems through a much-needed stress test that hardened oversight considerably. Several hundred honest Americans lost their jobs and careers while Frankel luxuriated in BMWs and diamonds. Yet we can still say “Thanks Marty – sort of.”

About the author: Jim Quiggle is director of communications for the Coalition Against Insurance Fraud.

Murder for life insurance money too common this year

Prevention might be key to deterring spousal homicides

A jury in Denver on Monday convicted Harold Henthorn of pushing his wife of 12 years over a 128-foot Rocky Mountain cliff to her death. His motive, investigators say, was $4.7 million in life insurance. Henthorn faces life in prison when sentenced on December 8.

The murder-for-insurance story has become all too common this year. More than a dozen cases have been filed across the country, mostly involving the death of spouses who are heavily insured.

There’s another common thread in many of these cases over the years: murderers have killed previously. Investigators now are convinced Henthorn killed his first wife in 1995. She died when the couple’s Jeep fell off a jack while changing a flat tire on a remote road, crushing her beneath it. Henthorn collected $600,000 in insurance in that case.

So the question must be asked: If investigators had dug just a little deeper back in 1995, and gathered a bit more evidence, could they have prevented or at least deterred Henthorn from killing again? Maybe. Maybe not.

Investigators might not even have known he’d taken out a life insurance policy on her. We often hear from detectives in homicide investigations, asking about how they can find out if a policy exists. This suggests that other investigators don’t bother asking. Learning that a murder victim is heavily insured is crucial because it often opens the door to other motives and evidence.

The other thing we’ve learned from exploring these cases is that killers often are smart and calculating. They research their potential crimes on the Internet. So it’s good that the Henthorn case is receiving widespread coverage. It sends a signal that killers get caught and punished for this crime, and hopefully that causes people to think twice.

Let’s hope so.

About the author: Dennis Jay is executive director of the Coalition Against Insurance Fraud.

Rideshare drivers taking insurers for ride?

Falsely billing personal auto insurers could jeopardize passengers

Uber’s agreement last week to stop misclassifying its drivers as independent contractors in Alaska raises more than a few fraud issues involving ridesharing.

Whether or not Uber was scamming in Alaska, you have to start thinking about other plots that personal-auto insurers, especially, will need to start watching for.

When applying for auto coverage, rideshare drivers could easily lie that they’re using their car for personal use only. Admitting they do ridesharing could dramatically hike their auto premiums or even lead to coverage denial. So now we have application fraud, and the genesis of potentially expensive claims scams farther down the road (literally).

Next come false claims. Maybe the car crashes while giving a passenger a ride. Two cars are damaged and a passenger gets whiplash. The driver lies that the incident happened while using his car for a personal chore.

He hides the evidence by routinely turning off his rideshare app as soon as he starts the commercial ride, or even before. The app thus doesn’t record anything, giving the driver plausible deniability. The driver then makes the claim with his personal auto insurer, hoping the insurer won’t investigate deeply enough to uncover his lies. The personal-auto insurer could be stuck with large injury and repair claims.

Rideshare firms frequently offer commercial auto coverage of their own. Except that there are serious questions about whether the policies are as comprehensive as the drivers’ personal auto coverage. Deductibles also may be lower for personal coverage. Drivers thus may be incentivized to default what should be commercial auto claims to their personal auto insurer.

Much of the evidence in fraud cases will come from forensics on the driver’s rideshare app. When was it turned on or off, and at what point in the ride process?

This is more than abstract ruminating. Scamming is underway. Rideshare drivers often talk about how they manage scams in blog-related discussions. They also offer each other advice about how to discretely fleece auto insurers in applications and claims. You’ll learn more from experts at Parr Law P.C. in the upcoming fall issue of the Journal of Insurance Fraud in America.

So insurers need to develop plans for dealing with rideshare scams. They’ll need to figure how to ferret out cons during applications and policy renewals. And develop strategies for seeing through dirty claims. Policies themselves will need clear wording.

Insurers also should work with state lawmakers and regulators to make sure the legal infrastructure clearly spells out fraud and liability. Rideshare firms should be involved as well so everyone is working to head off fraud.

Rideshares are exploding in cities around the U.S. Rideshare passengers — and there are many — need assurance that they are properly protected if they’re injured in a crash. Same with other motorists who are hurt, or whose vehicles sustain expensive damage. Coverage and justice cannot be delayed or refused over lengthy tussles about whether a rideshare driver is insured.

About the author: Jim Quiggle is director of communications for the Coalition Against Insurance Fraud.

Insurer fraud plans benefit from more uniformity

NAIC creating guideline for insurers and fraud bureaus

Fraud plansThe Coalition has long called for insurers to be proactive in identifying and deterring insurance fraud.

To this end, our model state fraud law initially drafted in 1994 requires insurers to create anti-fraud plans that serve as blueprints for how they investigate suspicious activity.

The clear intent is to make combating fraud schemes cost-effective. That means a justifiable ROI, with insurers saving more money than they spend fighting this crime. Such a net-plus is good for business and consumers.

Uniformity is a central element: All states should have similar requirements for insurer fraud plans. That way insurers need not “reinvent the wheel” for each state where they do business.

This hardly means one template plan for every state. Rather, it means a basic framework driven by certain core principles. Insurers can shape plan specifics to the unique challenges they confront in a given state.

The NAIC’s antifraud task force is crafting a guideline for insurer fraud plans. The task force hopes to finalize the model at its November meeting.

We applaud this effort. The model will bring us a big step closer to much-needed uniformity. The Coalition already is discussing holding a meeting of regulators and fraud fighters in 2016. It will explore how, together, insurers and regulators will better know what is expected in crafting and maintaining their fraud plans.

Look for more developments as we finalize plans for 2016.

About the author: Howard Goldblatt is director of government affairs for the Coalition Against Insurance Fraud.

Comp systems may miss boat in sticking with ICD-9

Uniform medical codes can help detect fraud across insurance providers

Come October 1, medical providers and health plans across America will be using a new medical coding system — ICD 10. The codes are much more detailed for billing for specific treatments and procedures. The new system will help perfect reimbursement, aid medical research and could improve medical outcomes.

The new codes also should help better detect scams once medical billers, insurer data systems and fraud fighters learn to effectively use thousands of new codes.

Unfortunately, half of state workers comp systems plan to stick with its predecessor — ICD-9. A big reason likely is the large cost of updating to ICD-10. But in the longterm, it may be pound-foolish not to switch over. They won’t be able to share claims data as easily with other systems to help track fraud trends and pinpoint treatment areas vulnerable to fraud.

The Healthcare Fraud Prevention Partnership recently conducted a study using code combinations from Medicare, health plans and property/casualty insurers. The data analysis resulted in significant savings for all. Each could focus on specific treatment areas that previously failed to appear on anyone’s radar. Fraud was detected more easily and false claims were refused.

Workers comp in the 26 states sticking with ICD-9 should reconsider. Sooner or later, they’ll have to make the upgrade. Might as well bite the bullet now and and join the rest of the medical and insurance communities — and reap the benefits.

About the author: Dennis Jay is executive director of the Coalition Against Insurance Fraud.

Michigan needs sledgehammers to level crash rings

Fraud units are crucial players taking down rings in Mass. and Fla.

As if we need another reminder that states benefit heavily from fraud bureaus, just look to a lengthy article posted on Mlive this week.

“Lawsuits and legal filings by insurance companies and others describe an insurance fraud network of ‘accident runners,’ who work with lawyers and doctors to find clients involved in auto accidents and milk their (often unnecessary) medical treatments for maximum payouts, through private insurers and under Michigan’s no-fault insurance law,” the article notes.

Organized rings are feeding off of the state’s unlimited no-fault benefits — the most-generous in the U.S. Arguably an entire culture of crime has sprouted around the no-fault feeding trough, with many rings operating in the Detroit area.

Economically hard-pressed Michigan hardly needs another set of troubles, yet the state has no fraud bureau to act as a central coordinating agency for pushback against rings that most observers agree are widespread and contributing to high auto premiums for drivers.

Fraud fighters are gearing for another push to seek a new law creating an auto-fraud prevention authority for next year (see Howard Goldblatt’s FraudBlogs, July 11 and June 23).

If anyone has to ask why Michigan needs a fraud unit, just look to Massachusetts and Florida.

The Massachusetts fraud bureau was a driver in creating task forces that continue rolling back staged-crash rings. The scammers were almost literally out of control in the early 2000s. The task forces intervened with thudding impact. They’ve saved drivers in targeted cities at least $875 million in lower premiums with fewer dirty injury claims to hike auto premiums.

Then comes Operation Sledgehammer in South Florida — another region where staged-crash gangs have spread out like cockroaches. Body shops were wrecking cars with sledgehammers — get it, Operation Sledgehammer? — to inflate insured damage. Chiro and other clinics have lodged hundreds of thousands of dollars in false crash injury claims. It’s a familiar pattern, though involving exceptionally large networks of criminals.

At least 92 suspects have been charged, with numerous convicted.

The takedowns involve a coordinated federal-state-local collaboration. The Division of Insurance Fraud has been a central player in the effort.

Imagine how far behind the investigations would be today if Florida had no fraud unit to bring statewide staffing, strategic thinking and real-time field intelligence to bear.

How many premium dollars could Michigan drivers save if the state had its own Operation Sledgehammers and task forces to apply steady pressure on insurance criminals? How much safer would the roads be with fewer predatory vehicles trying to maneuver innocent drivers into wrecks for insurance payouts? Right now, a much-needed Operation Sledgehammer in Michigan isn’t possible.


Michigan needs an auto authority, and a law to create and fund the unit. Just ask drivers who pay the premiums, and insurers who must pass those increases along to their policyholders.

About the author: Jim Quiggle is director of communications for the Coalition Against Insurance Fraud.

Strong fraud bills stall in N.Y. statehouse — again

Committee staff seeks mere misdemeanors prosecutors will ignore

New York crashesLast week Dennis Jay wrote a blog arguing about the need for stiffer penalties for those who cynically camouflage insurance arsons as hate crimes. Yet sometimes our desire for stronger penalties face other challenges — lack of strong felony laws.

New York is the poster child of a state that has yet to enact stronger auto insurance-fraud laws even though false treatment claims by crash rings have helped make auto premiums for New York drivers among the highest in the U.S.

For years we’ve have spoken about the dysfunction that surrounds how the state legislature is managed and works.

This year is a prime example: The Assembly speaker and Senate leadership were federally indicted, forcing them to resign their leadership positions. So both chambers ended up with new leaders and lost momentum in mid-session. Not a prescription for success.

The Coalition and our fraud-fighting partners were pushing three automobile-fraud bills: Make it a crime to lie about where you garage your vehicle … Make it a crime to recruit for staged-crash rings and medical mills; … Let insurers rescind a policy if premiums are paid from a bogus bank account. None of the bills went to the governor for his signature.

That’s where the dysfunction takes a twist. Take the premium-evasion bill. The committee chair overseeing the bill was supportive; the Assembly majority leader was the sponsor, and the new speaker sounded supportive.

So why did the bill stall?

Committee staff opposed the stiff penalty — a felony that could mean serious jail time. Staff thought the penalty was too strict and insurance fraud shouldn’t be a felony, they figured. Prosecutors also should take cases regardless of the penalty.

These staffers misunderstood how prosecutors and the courts work in New York. Most prosecutors who’d consider fraud charges come from the densely populated areas of New York City and its suburbs. There are plenty of felony cases to try— of all kinds. Few prosecutors would bother with mere misdemeanors.

The courts are similarly jammed with felony cases. What judge would look kindly on further crowding the docket with misdemeanors?

Yes, we need stiffer fraud sentences. Sometimes the problem, however, is less with the prosecutors and judges. Sometimes the problem involves the lack of strong fraud laws — and the vacuum of political will to enact them. New Yorkers deserve better.

About the author: Howard Goldblatt is director of government affairs for the Coalition Against Insurance Fraud.

Fake hate crimes victimize everyone

Two insurance scammers got off easy, deserve extra punishment

Frank Elliott had a hard time holding back the tears when his prominent Chicago-area gay bar burned down in June 2012.. “… everything that I’ve worked for … my whole life is on the line and I don’t know what to think or even begin with,” he told a TV reporter.

It was a good acting job. Elliott planned the fire, complete with spraypainting anti-gay slurs on the inside of the popular club just before his hired arsonist torched it.

Elliott got off easy when sentenced last week. No prison, just probation and a fine plus restitution of $107,000 for the insurance claim.

His wasn’t the only fake hate crime that hit the news last week. A federal jury in Tennessee ruled that a lesbian couple torched their Knoxville, Tenn.-area home in 2010 and blamed the insurance arson on a bigoted neighbor. Their insurer denied the $276,000 claim, and Carol Ann and Laura Stutte sued. The jury concluded the insurer had ample evidence that the couple burned down their own home.

They got off even easier than Frank Elliott. No criminal charges, no penalties other than the claim denial.

Committing a hate crime comes with extra penalties in many jurisdictions, including under federal law. There should be extra punishment for committing a fake hate crime as well.

People become more skeptical and more cynical every time one of these stories makes the news. Communities are less likely to reach out to real victims of hate crimes. People are less likely to believe their stories. Victims of hate crimes are victimized a second time by the devious attempts of those who fake hate crimes to file bogus claims.

Our courts should send decisive warnings that bogus hate crimes such as these latest insurance arsons are a ticket to swift and sure punishment.

About the author: Dennis Jay is executive director of the Coalition Against Insurance Fraud.

Kentucky database weeding out doctor-shoppers

Painkiller use falls, showing progress against epidemic addictive meds

pillsKentucky is one of the nation’s most over-medicated states. A seemingly boundless supply of painkillers and other addictive prescription meds are keeping tens of thousands of residents in a medicated fog.

At least 1,000 Kentuckians die each year from overdoses — more than die in traffic accidents.

Sadly, Kentucky for years has been America’s poster state for prescription pills runamuck. Poverty plays a leading role. And insurance fraud from false prescriptions finances much of the drug trouble. Greedy pain clinics, pharmacies, crime rings and desperate addicts are all part of the action.

The state has struggled to halt the epidemic. And now Kentucky may have the makings of a success formula, a new study suggests …

Doses of the popular painkiller hydrocodone have dropped 9.5 percent since 2011. Another heavily abused pain pill oxycodone fell 10.5 percent. All told, that’s about 27 million fewer doses coursing through Kentuckians’ bloodstreams.

So what’s behind the fall-off?

Keeping close tabs on prescription trafficking by pain docs and other medical providers is pushing more crooked docs off the streets.

Look to a database that monitors traffic in opioid and other scripts. The prescription monitoring program is known by its acronym Kasper. A 2011 law requires docs who prescribe painkillers to register with Kasper, which tracks their drug-delivering patterns. State officials can quickly spot and halt over-prescribers who Kasper identifies.

More than 24,000 medical providers have registered, and are being tracked. This compares with 7,545 providers before the law passed.

And only licensed docs can own and run pain clinics under the law. That’s helping weed out sleazy lay profiteers who install puppet docs as stooge clinic owners.

Kentucky has shuttered 20 clinics since the law passed, and four others have received cease-and-desist orders. The state also disciplined 64 docs for prescription violations in the last year, compared to 53 in 2011.

Ten other states also have mandated that prescribers and pharmacists check prescription databases prior to prescribing and dispensing certain addictive drugs.

The Kentucky experience strongly suggests other states should follow this lead to curb a national addiction problem that taking its toll on patients, insurers and society.

About the author: Jim Quiggle is director of communications for the Coalition Against Insurance Fraud.

Chiros fight Kentucky anti-solicitation law

Fraud fighters seek to thwart constitutional challenge

A federal court in Kentucky ruled the state’s anti-solicitation law unconstitutional last year. In response, anti-fraud community helped enact a new solicitation law this year that satisfies the court’s concerns.

The legislature overwhelmingly approved the fix.

Soliciting crash victims for potentially worthless medical treatment thus took a hit. The new law strictly limits soliciting of drivers and passengers for 30 days after the crash. It also blocks insurance payments to providers who violate the law, and protects consumers from making forbidden payments.

The law serves a timely purpose. Fraud rings are moving into Kentucky — some from Florida to escape ramped-up heat by law enforcement. They’re trying to lure often-traumatized crash victims for treatment at shady clinics that lodge inflated insurance billings for useless treatment.

Problem fixed, right? Wrong. Several chiropractors didn’t even wait for the law’s June 24 effective date.

They sued in federal court, saying the new law violates the First Amendment and due process. A hearing on an injunction to stop enforcement of the law is scheduled for late August.

Just hours before the Kentucky suit was filed, the Texas governor signed a new law restricting access to its crash reports. Much like Kentucky, the law aims to prevent insurance criminals from hounding crash victims to get injury treatment at shady clinics.

Only crash victims, their reps (insurers, medical providers, attorneys) and reporters now can obtain the full crash report. Anyone can buy the reports. Except that the personal information is redacted for outsiders, so the reports lose all value to fraudsters.

Kentucky’s new law builds on another initiative in Texas. After surviving court challenges, the state started enforcing a law restricting solicitation of auto crash victims for the first month after a crash. Fraud rings started moving out of Texas when the enforcement heat rose. They’re moving into other states like Kentucky, which the rings perceive as softer enforcement environments.

So fraud fighters must stop the Kentucky lawsuit. Success by the chiros could embolden challenges to anti-soliciting laws in other states such as Texas. 

The Coalition already has sent the Kentucky attorney general info that will help derail the suit. We also plan to team with partners to file friend-of-the-court briefs that provide strong legal support.

The new law keeping criminals from recruiting crash victims is a constitutionally sound idea that limits dishonest activity and protects crash victims from being victimized yet again.

About the author: Howard Goldblatt is director of government affairs for the Coalition Against Insurance Fraud.