Doctor fakes death in Russia to avoid U.S. health charges

Just a small favor, Dr. Tigran Svadjian begged the feds. He was cornered for allegedly stealing nearly $2.5 million from California’s state-run health insurer. He was mixed up with a suspected Armenian mob-related medical fraud ring.

The Newport Beach physician told prosecutors he’d plead guilty, and agreed to go undercover by wearing a wire in conversations with suspected ring cohorts.

He just needed time to visit his ailing mother in Russia. Sure, why not, the feds agreed. So Svadjian hopped a flight to Moscow. The feds soon received a death certificate from Russia. Svadjian suddenly died of pneumonia on a Moscow street. Case over, end of a convincing health-fraud prosecution, it seemed.

In fact, Svadjian faked his death to avoid being hauled into the courtroom. He went on the run for 10 years — even starting a new family — before being snagged in the Ukraine for using a fake passport.

Mixed up with mob figures

Let’s start at the beginning. … The Armenian immigrant got mixed up with medical providers that had suspected ties to the Armenian and Russian mob in California. The state was probing their operation allegedly for falsely billing Medi-Cal $13 million for medical tests and procedures.

Svadjian denied wrongdoing, yet provided only a handful of the 200 medical records the state requested. Nor could he account for 94 percent of his claimed medical treatments, officials say. Some patients he claimed to treat were dead. The feds soon investigated before allowing his fateful escape.

Once in Moscow, Svadjian bribed a Russian police officer $200 to get a fake death certificate from a Moscow morgue. More bribery earned him a new identity and passport as Vasily Petrosov.

His grieving wife Emilya, meanwhile, received what she believed were Svadjian’s ashes and death certificate. He left her to battle creditors trying to liquidate assets to pay off his debts.

Had child with Russian

Svadjian set himself up as a scuba instructor in an Egyptian resort town on the Black Sea coast. He fell for a Russian woman, and they had a child. Another child was on the way.

She flew back to Russia for a Caesarian childbirth. Svadjian wanted to join her. He forged yet another passport as Viktoras Cajevkis, a Lithuanian. Authorities in the Ukraine spotted the fake document and shipped him back to Egypt. Suspicious, Egyptian investigators dug into his records and discovered his real identity. Svadjian was packed off to the U.S. for prosecution.

He was inches from a fraud guilty plea before pulling that harrowing escape from the judge’s gavel back in 2002.

Svadjian made a second escape back in California after his re-arrest. Prosecutors thought he’d died, and they discarded the fraud evidence they’d carefully built up. So the federal judge instead handed Svadjian just 2 1/2 years in federal prison in March 2017 — for fleeing justice.

“Did the defendant get away with his (health-fraud) scheme? Yes, Mr. Svadjian, to a degree you were successful,” Judge Michael Fitzgerald said in a downtown Los Angeles courtroom. “You deserve 60 months.”

Why was baby insured for $500,000 of life insurance?

A father’s greed for $500,000 of life insurance ended the short life of smiling toddler Prince McLeod Rams.

His father Joaquin drowned the doe-eyed Washington, D.C.-area tyke, who was just 15 months old.

How could Joaquin get away with buying a fortune worth of life insurance on an infant?

Life insurance can keep a family running if a spouse dies of cancer, or a business afloat if a key partner has a heart attack. These are valid reasons for insuring someone’s life. It’s called an insurable interest. It’s a standard requirement that helps keep life policies from becoming murder weapons.

Yet Rams hoodwinked the life-insurance system.

In applying for coverage, Rams lied that the boy’s estranged mother was dead in order to avoid telling her about his plans to insure Prince’s life.

Simply trying to insure a newborn also should’ve raised red flags when Joaquin sought the coverage. His shaky finances gave him yet a deeper murder motive.

Rams was blowing through money. He even planned to move out of his Northern Virginia home to rent it out and make his mortgage payments.

His suspicious behavior finally did him in. Rams told his Realtor right after Prince died that he was moving back home. He said he was buying new appliances and re-painting his home, even though his finances were on quicksand at the time. Detailed forensics also revealed Prince was drowned.

Did any insurer check whether Prince’s mother was alive? Did they check Rams’ finances? Did the mere fact of a young father insuring a newborn’s life trigger enough alarm bells for a deeper look at his motives?

We need a high standard of scrutiny for insuring the precious lives of toddlers and other youths. That responsibility extends from life insurers to insurance agents to state laws that permit such sales.

Little Prince never had a childhood. But his death can help other kids live their childhoods. We must tighten a life-insurance system that sadly allowed Prince to perish all too young.

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

Journal of Insurance Fraud in America

Kenny Allen helped launch one of the largest  documented insurance-arson rings in U.S. history, according to the U.S.  Attorney’s Office. Allen’s ties to this group were really not complex. He just  knew a lot of people, and had many family and friends willing to set fires for  potentially large insurance payouts.

This ring staged at least 73  fires and masterfully exploited gaps in how insurers investigate fire claims.

It is a miracle nobody died in  the flames engulfing homes, cars and commercial buildings throughout the  region. Fortunately, only one firefighter was injured.

Allen could have finished his  criminal career bitter and unapologetic, tossed into prison after a double-life  caught up with him. Yet he was a walking contradiction to those who knew him  best. He attended church on Sunday, ran inner-city basketball programs, and  received awards from the mayor for community involvement. Allen also set fires  for money, arranged to have fires set for others, and dealt narcotics.

Arrest  and redemption

I arrested Allen as a Special  Agent with the Bureau of Alcohol, Tobacco and Firearms and Explosives (ATF).  Since then, I have become his friend and supporter.

Allen spent nearly four years  in federal prison. He often told me prison was the best thing that ever  happened to him. He became an uplifting model of personal redemption. Allen now  lives an honest life with a decent job. More importantly, he voluntarily gives  workshops and speeches to public- and private-sector investigators around the  U.S.

Allen tells how  easily he and his cohorts gouged 22 insurers out of more than $4 million.  Insurer arson investigations were spotty, hurried and piecemeal. Allen says he  found systemic weaknesses in claim systems, and easily took advantage of the  openings.

“Allen’s  saga convincingly shows how the claim system broke down …”

He personally set 15 fires and  arranged others. Many observers still say his four-year sentence was too  lenient, that his large-scale crime deserved a longer jail term.

Yet Allen made a wise tradeoff:  He fully cooperated in a 2 1/2-year investigation that uncovered the 73 arsons.  Investigators considered only two fires “incendiary” until Allen revealed the  truth. His own sister Vanessa set 40 fires. She was among the arsonists he revealed.  She was unapologetic, told the judge that insurance companies have a lot of  money, and she was just “helping” people. She spent 10 years in federal prison,  and should have done more.

Allen’s saga convincingly shows  how the claim system broke down, and how insurance companies  can strengthen their defenses against costly insurance arsons of all sizes.1

Arson ring  broken up

Allen’s downfall and road to redemption began on  the same date: Jan. 29, 2006. A Nationwide Insurance agent grew suspicious after seeing the same names appear in fire  claims. She handed SIU investigator Princess Spencer a paper grocery  sack with three claim files. Spencer soon grew certain she was onto a major  case. She contacted the federal Bureau of Alcohol, Tobacco, Firearms and  Explosives (ATF) in Indianapolis.

The ATF and Muncie Police Department soon  launched an investigation.

Thousands of pages of insurance documents and  hundreds of fire- department reports were reviewed over the next year. More  than 100 criminal reports were run and analyzed. Dozens of interviews were  conducted with witnesses and claimants. Federal and state prosecutors regularly  met. They also maintained a close liaison with the insurance industry.

The first arrest was of public adjuster Douglas  Haynes in 2007. His name appeared in many insurance claims being investigated.  He also was a leading associate of Kenny Allen and his arson ring. Allen bribed  Haynes to officially classify most of his own arsons as accidental home fires.  Fingering Haynes would help investigators get to ringleader Allen.

Allen actually called the  Indianapolis ATF office on his own, the day after Haynes was arrested. His  conscience got the better of him. He wanted the fires to stop and to provide  information, yet wasn’t ready to admit his involvement.

He gradually revealed the details of his massive  scam — who set what fires, when, and how the fires were staged as accidental.  He also identified other ring members and their roles. His arson scheme spread  throughout Muncie, then to Indianapolis. Allen’s ring members thought insurance  fires meant easy money, and for several years they were right.

The confession rate of ring members soon hit  nearly 100 percent once suspects learned Allen was cooperating.

“His cooperation helped convict nearly  50 defendants.”

Allen helped identify the 73 insurance arsons  — 62 involved homes and other buildings, and 11 were vehicles. Many more  arsons likely were staged, and missed by investigators.

His cooperation helped convict  nearly 50 defendants. The investigation also resulted in multiple narcotics  arrests, and the arrest of two suspects in a home-invasion homicide. Vanessa  Allen received 121 months and was ordered to repay nearly $2.3 million. She was  released in late December 2015. Haynes was found dead in a homeless camp the  week he was to be sentenced and jailed. 2

Kenny Allen is likable,  animated and explicit about how easily his fraud ring exploited gaps in the  insurer claim system.

As he saw it: Insurance fires  were safer than what he called the “dope game,” which he also knew well. Nobody  was likely to get shot committing “insurance fires,” he reasoned.  Fire losses resembled easy lottery wins. Insurance checks with his name were his money — payments he believed insurance  companies owed him.

Adjusting insurer adjusters

Frontline insurer claims adjusters were the  biggest gaps, Allen says. Insurers considered their staff adjusters primarily  an arm of the customer-service operation instead of rigorous scrutinizers of  claims. Adjusters should be the insurer’s first line of anti-fraud defense.  “Trust but verify” should be their motto.

Hurried. Allen often targeted  larger insurers — they typically assigned too many claims to each adjuster.  Allen was a master manipulator. He knew most insurer adjusters were  over-worked, hurried and wanted to clear claims with maximum speed and ease.  The adjusters thus avoided confrontation and digging into claims that would  complicate their jobs.

Adjusters usually asked only  the standard, cursory form questions to confirm Allen’s expensive claims.

Phones. Adjusters rarely asked about his telephone records. Those  records could have verified who was speaking with whom before, during and after  fires. The records also potentially could have verified his locations and  provided other clues.

Allen began using inexpensive throw-away phones  after an adjuster finally asked about his calls. Still, insurers never  questioned Allen about his prolific use of throw-away phones, either. The  devices were strong clues of potential fraud.

Bluster. Bluster  was an important tactic that intimidated adjusters. Allen correctly gambled  that adjusters did not want policyholders to accuse them of bad customer  service. This tactic succeeded when he demanded more insurance money, or just  wanted to speed the payout.

He routinely  threatened to go over the head of adjusters who questioned him too closely. A  typical threat: “I want the name and phone number of your boss. I want to speak  to him or her about how badly you’re treating me.”

Public  adjusters a red flag

Claimants using a public adjuster or attorney to  push for large fire payouts is a big warning sign, Allen advises. Claimants  with legitimate fire losses do not need a public adjuster or attorney.

Allen bribed public-adjuster  Haynes to help maximize claim payouts by rubber-stamping arsons as accidental  fires. That tactic succeeded. He also provided Haynes narcotic painkillers.

“Allen bribed  public-adjuster Haynes to help maximize claim payouts …”

Insurers routinely paid claims  once fires were classified as accidental. This is a well-defined cause  classification. It is hard for insurers to rebut once “accidental” is  officially declared by a hired origin-and-cause investigator. This especially was  an issue with the ensuing criminal investigations. Three levels of federal  prosecutors repeatedly said they had no case because the fires were classified  as such.

Stronger  origin-and-cause needed

Insurer adjusters and others  who worked Allen’s claims knew too little about arson investigations and fire  science to see behind the ruses of a clever and manipulative crime ring. Too  few questions thus were asked of the experts insurers hired to investigate.

Training  needed. Adjusters should receive, at  least, basic training in origin-and-cause fire investigations. The same holds  true for insurer investigators and claims managers. All should be qualified to  ask pertinent questions of their vendor investigators,  especially if any doubt about the fire’s cause.

Grow assertive. Insurers should commit to more-assertive origin-and-cause investigations when troubling clues begin surfacing. Insurers  routinely avoided this step in their desire to settle Allen’s fire claims  quickly and keep policyholders happy. If not more-assertive, insurers at least  should be more discreetly skeptical.

Among the schemes insurers  might have discovered if staff adjusters were better trained — and  assertive — in origin-and-cause investigations:

Electrical  fires. Allen set “seasonal” fires. His  ring members started electrical and cooking fires in summer and spring months.  He placed space heaters next to combustibles such as a bed or a sofa during  colder months. He also staged Christmas tree fires to look accidental.

Vanessa later said she simply  plugged several appliances into a power strip, using a cheap extension cord.  She then placed clothing and/or other readily available items around and over  the cords — simulating sloppy housekeeping. She next slit the insulation  of the power or appliance cord to expose bare conductors, then ignited the  combustibles. She knew electrical arcing would occur.

Fire crews and investigators  typically found evidence of electrical arcing on the conductors. They correctly  determined a fire’s general area of origin. However, they inaccurately  attributed the fires to electrical fault, or overloaded circuits and sloppy  housekeeping. Thus, the fires were considered “accidental.”

Rented  homes. Ring members often rented  houses or apartments to exploit renter insurance policies. Vanessa Allen, for  example, installed straw renters who never lived in the homes. She and the  “renters” went out on garbage-collection day. They scavenged old furniture and  personal belongings to spread inside the rentals, making the places appear  lived-in. They also bought inexpensive things from the Salvation Army or  Goodwill.

The “renters” made plausible —  and inflated — claims for the junk possessions after staging the fires.

Receipts. Vanessa purchased receipts from friends and acquaintances  for more-expensive items such as televisions. She convincingly presented the  receipts to insurers after the setup fires. Insurers typically accepted and  reimbursed them at face value, with little verification.

Grease  fires. Kenny Allen preferred kitchen  fires. He placed chicken wings in a pot on the kitchen counter. He put a pan of  grease on the stove, then left after turning the burner onto a high setting.  The grease eventually ignited, and flames spread to cabinets and other nearby  combustibles.

Allen once again bullied  adjusters and investigators during claims: “Who are you to say this wasn’t an  accident? I was preparing to fry up some wings, got distracted and left the  grease on stove too long.”

Keeping policyholders happy  usually trumped detailed claim scrutiny. Origin and cause was easy to determine  — grease on the stove. But how do you prove intent? Not knowing intent, how can  a fire be classified as accidental or otherwise?

More  gaps to close

Insurers are steadily improving  their investigations, though have a long way to go. Many gaps when Allen’s ring  reached peak productivity remain exploitable even today. Among other  opportunities to tighten the claims system:

Vendor  investigators. Insurer personnel should  carefully vet fire investigators they hire for qualifications such as  expertise, qualifications and previous expert witness testimony.3 4 An error caused by lack of training or proper understanding  of fire science could cost the insurer considerable money in payouts. This also  could cause great harm to the insured.

This is especially true when  there is any question about a fire’s cause. If something seems wrong, then it  probably is. Only two of Allen’s 73 fires were classified as intentionally set;  2.7 percent is an unacceptably low percentage. Just as important, what criteria  do origin-and-cause investigators use to classify a fire?

Data  analysis. Origin-and-cause  investigations should go well beyond examining burned rubble. Data analysis is  equally crucial. Carefully interviewing claimants and witnesses is integral to  data analysis.

Does the story match the fire  dynamics? Does the timing of events (as told by the insured or witnesses) line  up with the damage? These kinds of questions rarely surfaced after fires.

Better  communication. Adjusters and other  insurer staff working his claims often didn’t communicate well or share clues  up and down the claim assembly line. Insurers also were unlikely to compare  fire claims and clues among each other. Insurers thus should better compare  notes.

EUOs  needed. Insurers rarely wanted to spend  extra money to hire an attorney for examinations under oath, Allen successfully  gambled. The information from EUOs could have taken Allen’s crime ring apart.

Insurance fraud is a crime of  constantly shifting tactics. Fraudsters defraud, insurers adjust, and scammers  try new approaches when insurers start catching old methods. Rarely has a  master fraudster such as Kenny Allen been so forthcoming, prolific and public  about how such an epic arson spree — and how insurers can shut down scams like  his.

It is notable that — in my  experience — many insurers still have similar soft spots in their claim  systems a decade after Allen’s ring was shut down. It is equally notable that  Allen’s workshops are standing-room-only. As arson science and investigative  techniques advance, insurers are working to ensure more arson rings like this  flame out before they burn through insurance money.

About the author: Mike Vergon is an IAAI-CFI, and owner of Vergon & Associates Fire Investigation LLC, in the Indianapolis area. Prior, he spent nearly 24 years with the ATF. Vergon also was a regular instructor at the ATF National Academy (teaching fire investigation), and has taught at the National Fire Academy. He also instructs a course called “Complex Fire Investigation for the Insurance Industry.” It is coordinated by the ATF and the International Association of Arson Investigators. Vergon has worked some of the largest and most-complex fire investigation cases in the U.S.

Journal of Insurance Fraud in America

Kenny Allen helped launch one of the largest documented insurance-arson rings in U.S. history, according to the U.S. Attorney’s Office. Allen’s ties to this group were really not complex. He just knew a lot of people, and had many family and friends willing to set fires for potentially large insurance payouts.

This ring staged at least 73 fires and masterfully exploited gaps in how insurers investigate fire claims.

It is a miracle nobody died in the flames engulfing homes, cars and commercial buildings throughout the region. Fortunately, only one firefighter was injured.

Allen could have finished his criminal career bitter and unapologetic, tossed into prison after a double-life caught up with him. Yet he was a walking contradiction to those who knew him best. He attended church on Sunday, ran inner-city basketball programs, and received awards from the mayor for community involvement. Allen also set fires for money, arranged to have fires set for others, and dealt narcotics.

Arrest and redemption

I arrested Allen as a Special Agent with the Bureau of Alcohol, Tobacco and Firearms and Explosives (ATF). Since then, I have become his friend and supporter.

Allen spent nearly four years in federal prison. He often told me prison was the best thing that ever happened to him. He became an uplifting model of personal redemption. Allen now lives an honest life with a decent job. More importantly, he voluntarily gives workshops and speeches to public- and private-sector investigators around the U.S.

Allen tells how easily he and his cohorts gouged 22 insurers out of more than $4 million. Insurer arson investigations were spotty, hurried and piecemeal. Allen says he found systemic weaknesses in claim systems, and easily took advantage of the openings.

“Allen’s saga convincingly shows how the claim system broke down …”

He personally set 15 fires and arranged others. Many observers still say his four-year sentence was too lenient, that his large-scale crime deserved a longer jail term.

Yet Allen made a wise tradeoff: He fully cooperated in a 2 1/2-year investigation that uncovered the 73 arsons. Investigators considered only two fires “incendiary” until Allen revealed the truth. His own sister Vanessa set 40 fires. She was among the arsonists he revealed. She was unapologetic, told the judge that insurance companies have a lot of money, and she was just “helping” people. She spent 10 years in federal prison, and should have done more.

Allen’s saga convincingly shows how the claim system broke down, and how insurance companies can strengthen their defenses against costly insurance arsons of all sizes.1

Arson ring broken up

Allen’s downfall and road to redemption began on the same date: Jan. 29, 2006. A Nationwide Insurance agent grew suspicious after seeing the same names appear in fire claims. She handed SIU investigator Princess Spencer a paper grocery sack with three claim files. Spencer soon grew certain she was onto a major case. She contacted the federal Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) in Indianapolis.

The ATF and Muncie Police Department soon launched an investigation.
Thousands of pages of insurance documents and hundreds of fire- department reports were reviewed over the next year. More than 100 criminal reports were run and analyzed. Dozens of interviews were conducted with witnesses and claimants. Federal and state prosecutors regularly met. They also maintained a close liaison with the insurance industry.

The first arrest was of public adjuster Douglas Haynes in 2007. His name appeared in many insurance claims being investigated. He also was a leading associate of Kenny Allen and his arson ring. Allen bribed Haynes to officially classify most of his own arsons as accidental home fires. Fingering Haynes would help investigators get to ringleader Allen.

Allen actually called the Indianapolis ATF office on his own, the day after Haynes was arrested. His conscience got the better of him. He wanted the fires to stop and to provide information, yet wasn’t ready to admit his involvement.

He gradually revealed the details of his massive scam — who set what fires, when, and how the fires were staged as accidental. He also identified other ring members and their roles. His arson scheme spread throughout Muncie, then to Indianapolis. Allen’s ring members thought insurance fires meant easy money, and for several years they were right.

The confession rate of ring members soon hit nearly 100 percent once suspects learned Allen was cooperating.

“His cooperation helped convict nearly 50 defendants.”

Allen helped identify the 73 insurance arsons — 62 involved homes and other buildings, and 11 were vehicles. Many more arsons likely were staged, and missed by investigators.

His cooperation helped convict nearly 50 defendants. The investigation also resulted in multiple narcotics arrests, and the arrest of two suspects in a home-invasion homicide. Vanessa Allen received 121 months and was ordered to repay nearly $2.3 million. She was released in late December 2015. Haynes was found dead in a homeless camp the week he was to be sentenced and jailed. 2

Kenny Allen is likable, animated and explicit about how easily his fraud ring exploited gaps in the insurer claim system.

As he saw it: Insurance fires were safer than what he called the “dope game,” which he also knew well. Nobody was likely to get shot committing “insurance fires,” he reasoned. Fire losses resembled easy lottery wins. Insurance checks with his name were his money — payments he believed insurance companies owed him.

Adjusting insurer adjusters

Frontline insurer claims adjusters were the biggest gaps, Allen says. Insurers considered their staff adjusters primarily an arm of the customer-service operation instead of rigorous scrutinizers of claims. Adjusters should be the insurer’s first line of anti-fraud defense. “Trust but verify” should be their motto.

Hurried. Allen often targeted larger insurers — they typically assigned too many claims to each adjuster. Allen was a master manipulator. He knew most insurer adjusters were over-worked, hurried and wanted to clear claims with maximum speed and ease. The adjusters thus avoided confrontation and digging into claims that would complicate their jobs.

Adjusters usually asked only the standard, cursory form questions to confirm Allen’s expensive claims.

Phones. Adjusters rarely asked about his telephone records. Those records could have verified who was speaking with whom before, during and after fires. The records also potentially could have verified his locations and provided other clues.

Allen began using inexpensive throw-away phones after an adjuster finally asked about his calls. Still, insurers never questioned Allen about his prolific use of throw-away phones, either. The devices were strong clues of potential fraud.

Bluster. Bluster was an important tactic that intimidated adjusters. Allen correctly gambled that adjusters did not want policyholders to accuse them of bad customer service. This tactic succeeded when he demanded more insurance money, or just wanted to speed the payout.

He routinely threatened to go over the head of adjusters who questioned him too closely. A typical threat: “I want the name and phone number of your boss. I want to speak to him or her about how badly you’re treating me.”

Public adjusters a red flag

Claimants using a public adjuster or attorney to push for large fire payouts is a big warning sign, Allen advises. Claimants with legitimate fire losses do not need a public adjuster or attorney.

Allen bribed public-adjuster Haynes to help maximize claim payouts by rubber-stamping arsons as accidental fires. That tactic succeeded. He also provided Haynes narcotic painkillers.

“Allen bribed public-adjuster Haynes to help maximize claim payouts …”

Insurers routinely paid claims once fires were classified as accidental. This is a well-defined cause classification. It is hard for insurers to rebut once “accidental” is officially declared by a hired origin-and-cause investigator. This especially was an issue with the ensuing criminal investigations. Three levels of federal prosecutors repeatedly said they had no case because the fires were classified as such.

Stronger origin-and-cause needed

Insurer adjusters and others who worked Allen’s claims knew too little about arson investigations and fire science to see behind the ruses of a clever and manipulative crime ring. Too few questions thus were asked of the experts insurers hired to investigate.

Training needed. Adjusters should receive, at least, basic training in origin-and-cause fire investigations. The same holds true for insurer investigators and claims managers. All should be qualified to ask pertinent questions of their vendor investigators, especially if any doubt about the fire’s cause.

Grow assertive. Insurers should commit to more-assertive origin-and-cause investigations when troubling clues begin surfacing. Insurers routinely avoided this step in their desire to settle Allen’s fire claims quickly and keep policyholders happy. If not more-assertive, insurers at least should be more discreetly skeptical.

Among the schemes insurers might have discovered if staff adjusters were better trained — and assertive — in origin-and-cause investigations:

Electrical fires. Allen set “seasonal” fires. His ring members started electrical and cooking fires in summer and spring months. He placed space heaters next to combustibles such as a bed or a sofa during colder months. He also staged Christmas tree fires to look accidental.

Vanessa later said she simply plugged several appliances into a power strip, using a cheap extension cord. She then placed clothing and/or other readily available items around and over the cords — simulating sloppy housekeeping. She next slit the insulation of the power or appliance cord to expose bare conductors, then ignited the combustibles. She knew electrical arcing would occur.

Fire crews and investigators typically found evidence of electrical arcing on the conductors. They correctly determined a fire’s general area of origin. However, they inaccurately attributed the fires to electrical fault, or overloaded circuits and sloppy housekeeping. Thus, the fires were considered “accidental.”

Rented homes. Ring members often rented houses or apartments to exploit renter insurance policies. Vanessa Allen, for example, installed straw renters who never lived in the homes. She and the “renters” went out on garbage-collection day. They scavenged old furniture and personal belongings to spread inside the rentals, making the places appear lived-in. They also bought inexpensive things from the Salvation Army or Goodwill.

The “renters” made plausible — and inflated — claims for the junk possessions after staging the fires.

Receipts. Vanessa purchased receipts from friends and acquaintances for more-expensive items such as televisions. She convincingly presented the receipts to insurers after the setup fires. Insurers typically accepted and reimbursed them at face value, with little verification.

Grease fires. Kenny Allen preferred kitchen fires. He placed chicken wings in a pot on the kitchen counter. He put a pan of grease on the stove, then left after turning the burner onto a high setting. The grease eventually ignited, and flames spread to cabinets and other nearby combustibles.

Allen once again bullied adjusters and investigators during claims: “Who are you to say this wasn’t an accident? I was preparing to fry up some wings, got distracted and left the grease on stove too long.”

Keeping policyholders happy usually trumped detailed claim scrutiny. Origin and cause was easy to determine — grease on the stove. But how do you prove intent? Not knowing intent, how can a fire be classified as accidental or otherwise?

More gaps to close

Insurers are steadily improving their investigations, though have a long way to go. Many gaps when Allen’s ring reached peak productivity remain exploitable even today. Among other opportunities to tighten the claims system:

Vendor investigators. Insurer personnel should carefully vet fire investigators they hire for qualifications such as expertise, qualifications and previous expert witness testimony.3 4 An error caused by lack of training or proper understanding of fire science could cost the insurer considerable money in payouts. This also could cause great harm to the insured.

This is especially true when there is any question about a fire’s cause. If something seems wrong, then it probably is. Only two of Allen’s 73 fires were classified as intentionally set; 2.7 percent is an unacceptably low percentage. Just as important, what criteria do origin-and-cause investigators use to classify a fire?

Data analysis. Origin-and-cause investigations should go well beyond examining burned rubble. Data analysis is equally crucial. Carefully interviewing claimants and witnesses is integral to data analysis.

Does the story match the fire dynamics? Does the timing of events (as told by the insured or witnesses) line up with the damage? These kinds of questions rarely surfaced after fires.

Better communication. Adjusters and other insurer staff working his claims often didn’t communicate well or share clues up and down the claim assembly line. Insurers also were unlikely to compare fire claims and clues among each other. Insurers thus should better compare notes.

EUOs needed. Insurers rarely wanted to spend extra money to hire an attorney for examinations under oath, Allen successfully gambled. The information from EUOs could have taken Allen’s crime ring apart.

Insurance fraud is a crime of constantly shifting tactics. Fraudsters defraud, insurers adjust, and scammers try new approaches when insurers start catching old methods. Rarely has a master fraudster such as Kenny Allen been so forthcoming, prolific and public about how such an epic arson spree — and how insurers can shut down scams like his.

It is notable that — in my experience — many insurers still have similar soft spots in their claim systems a decade after Allen’s ring was shut down. It is equally notable that Allen’s workshops are standing-room-only. As arson science and investigative techniques advance, insurers are working to ensure more arson rings like this flame out before they burn through insurance money.

About the author: Mike Vergon is an IAAI-CFI, and owner of Vergon & Associates Fire Investigation LLC, in the Indianapolis area. Prior, he spent nearly 24 years with the ATF. Vergon also was a regular instructor at the ATF National Academy (teaching fire investigation), and has taught at the National Fire Academy. He also instructs a course called “Complex Fire Investigation for the Insurance Industry.” It is coordinated by the ATF and the International Association of Arson Investigators. Vergon has worked some of the largest and most-complex fire investigation cases in the U.S.

Health apps open to hacking, theft of personal medical info

There are many different types of identity theft, and different ways that data breaches can harm you. While this crime can have devastating consequences, one form can be life threatening.

Medical identity theft and medical data breaches are a growing concern for doctors’ offices, hospitals, law enforcement and lawmakers alike. About one of every three Americans had their medical records compromised. More than 1.5 million patients’ records have been compromised in 106 medical data breaches so far this year, placing the medical/healthcare industry second in the number of breaches, following the business sector.

Patient records often contain your complete identity profile, and perhaps even your Social Security number. That makes medical files a hot commodity for identity thieves.

For starters, a typical identity thief can use or sell your medical information to receive care. That’s where the life-threatening part can come in. Your medical identity might be used fraudulently by someone who receives care for conditions or illnesses you don’t have. Once that information is part of your file, any medicines, treatment plans, or diagnoses the thief receives can threaten your safety if they don’t suit your medical needs.

The sharp rise in ransomware hack attacks against medical facilities is also a growing concern. Some hospitals pay the hackers’ ransom to avoid lawsuits and HIPAA violations. That means your medical records can net a cybercriminal a lot of money, in a variety of damaging ways.

In addition, health and fitness apps are a newer avenue for stealing your medical information. While the connection between these apps and your privacy is still a gray area, 8 out of 10 health apps have left the door wide open to data breaches and privacy violations.

It’s better to be safe than sorry with your health-tracking apps. If left unprotected or allowed to have too many permissions (like accessing your location, connecting to your contacts lists or your social-media accounts, for example), it could pose a hacking problem.

Also, putting your information at risk is your smartphone which could easily fall into the wrong hands. It’s important to passcode-protect your phone, deny unnecessary permissions on your apps, and use a strong, unique password when setting up each app’s account. 

If the industry has learned anything from hackers, it’s that they’re always one step ahead with technology. Too often, once the technology is out there and in the cloud, hackers find a way to exploit it for their gain, then consumers must learn how to protect themselves.

Just as important, consumers must ask the hard questions of their healthcare providers about where their information will end up, who can access it, and how it’ll be protected. It’s fine (and legal) to refuse to turn over your Social Security number to those who don’t need it.

It’s also imperative to review all account statements, medical insurance statements and medical bills carefully for signs that someone is billing you for care you never received.

Handle those issues immediately, and remember, if your medical identity is stolen, there’s a real possibility your identity will be used in other illicit ways. Monitor all of your accounts carefully for suspicious activity. And, when in doubt, contact the Identity Theft Resource Center to have a victim advisor answer your questions.

About the author: Eva Velasquez is CEO and president of the Identity Theft Resource Center

Un-civil civil penalties can thwart fraudsters

Crafting a model fraud law was one of the Coalition’s first agenda items when we were founded in 1993. It took us two years to complete, and still is the most complete anti-fraud model law on the streets.

The larger the fraud the stronger the penalty, our model says. Arson and other potentially life-threatening schemes merit the most-serious felony sentences. We also created a unique law exposing leaders of crash rings and organized fraud schemes to large civil fines that can bankrupt their operations.

Our “unlawful insurance act” was ahead of its time — few policymakers grasped the civil penalty’s purpose when we wrote that model in 1994. Yet with many lawmakers reluctant to strengthen criminal penalties, maybe it’s time to go after more ringleaders in civil court.

New Mexico lawmakers resist allowing judges to aggregate the full amount of the scam when sentencing fraudsters. It would let judges mete out stiffer jail terms and fines.

New York is legendary for stonewalling much-needed laws clamping down on recruiters for crash rings, and other scammers. Key committee staff typically see little need for more felonies. And supporters of tougher laws are unwilling to compromise with light misdemeanors that would discourage over-worked prosecutors from taking cases.

Some states also want to decriminalize some offenses that, the thinking goes, might further clog already-crowded prisons with non-violent offenders. It’s also harder to push for stricter criminal insurance penalties when there’s a move afoot to decriminalize other offenses.

Maybe we should seek more civil actions when the winds of change for tougher criminal penalties blow in our faces. Enacting large civil penalties get inside the wallets of fraudsters and remove their profit motive.

The Coalition helped Maryland and Minnesota enact a civil penalty. Both states can quickly go after fraudsters on their own, without waiting for the often slow-moving criminal system to wind its course. Maryland has seen success, and Minnesota wants to ramp up it effort.

To paraphrase Robert Frost — two roads diverge. One takes us on the difficult road for stronger criminal penalties. The other is less traveled. We seek civil actions when the criminal system isn’t set up to fully respond.

Fraud fighters need to have this discussion. Is it time to enact more civil penalties against fraudsters?

Let’s begin the talk.

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

Statutes of limitation should start when scam discovered

I’m often mistaken for an attorney. I’m not (much to my mother’s lament) but the law still is something I understand, or at least the kind that seeks to tamp down insurance fraud.

All states have laws setting timeframes for when prosecutions must be launched. Most statutes of limitation start the clock ticking when the crime is committed. That’s fine for crimes such as murder, which entail a very specific act.

Complex financial crimes such as insurance fraud are different. Insurers may discover a suspected scam well after the money was stolen. Staged-crash and medical rings might get away with bogus injury claims for years before insurers can discover them, and piece together enough evidence to earn a prosecution. Some life insurance scams can also take years to unravel.

Obvious insurance crooks who’d normally be convicted can go free on what amounts to a technicality.

Colorado and Arkansas recently gave fraud fighters more time to build cases against larger-scale scammers.

Colorado’s three-year statute of limitations starts running when the insurance crime is discovered. The clock used to start ticking when the scheme happened.

Arkansas allows five years for staged crashes (though still three years for other insurance crimes). The statute begins when the last scam occurred.

There’s also a wrinkle — fraud fighters have six-10 years if they couldn’t reasonably have discovered the scam in time.

These states grasp that complex insurance scams take time to discover and dismantle. It makes little sense to treat insurance fraud like a home burglary, bank robbery or murder. These are single acts that occur in specific moments.

Fraud fighters and victimized policyholders alike get a fair shake from the wise new laws in Colorado and Arkansas. Other states should review their statutes of limitation and follow this smart lead.

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

 

Fraud of the Month

Foggy addicts laced with heroin and other opioid poison trooped to Kenny Chatman’s drug treatment center and sober homes, anxious for a clean life.

Instead, Chatman plied them with more drugs and pimped out women in exchange for drug highs. The Palm Beach, Fla. entrepreneur kept his residents addicted and tethered to sober homes that often were little more the unsafe flophouses. Chatman preyed on their misery to soak health insurers for $25 million of useless sobriety treatment and drug testing.

Sober homes and drug testing have taken off in response to America’s rising tide of opioid addiction, especially cheap heroin. Hundreds of drug-treatment centers and thousands of sober homes dot Palm Beach County alone.

Many provide excellent care. Dishonest operators like Chatman also are common. Sober homes can exploit addicts for large insurance paydays. Chatman has no experience in drug treatment, but burrowed into the business with an entrepreneur’s nose for gouging insurers.

His sober homes were supposed to be drug-free, yet residents openly used. Chatman let addicts stay high. He even gave them drugs so it would appear they relapsed — needing yet more treatment. The addicts just needed to attend insurer-paid drug-treatment sessions, and give urine and saliva samples for worthless drug testing.

Alison Flory overdosed at one home called Open Arms and died. Nicole De La Pena ended up in the hospital for a week, and survived.

Women pimped for money

“Sober homes can exploit addicts for large insurance paydays. Chatman has no experience in drug treatment, but burrowed into the business with an entrepreneur’s nose for gouging insurers. ”Human trafficking kept Chapman’s insurance con humming as well. He pimped some women on craigslist.org and backpage.com. He made them have sex at the homes, hotels or motels for money. Chapman kept their drugs coming as well so they’d stick around for more bogus tests and treatment. Chatman threatened to kick the women onto the streets, without drugs, if they complained. Women were kept under close watch in one home where the windows where screwed shut.

Chatman threatened violence to keep residents in drug-addled slavery. He also stored their car keys, phones, meds and food stamps in his office to keep residents from escaping.

Carpets at one of chaotic sober home were stained with dried blood, bare mattresses lay around, and trash was strewn throughout, witnesses say.

Drug-testing labs paid Chatman large kickbacks to refer addicts for bogus urine and saliva testing. More than 40 private and taxpayer-funded insurers were billed.

Exploited urine tests

Urine testing is a $1-billion money-maker in South Palm Beach County alone, the Palm Beach Post says. A single bogus test can rake in thousands of dollars from private insurers, Medicare or Medicaid. Unneeded repeat testing can pile up more insurance bills. So can useless tests by multiple labs for the same addict, as can tests for drugs an addict doesn’t use.

Doctors on Chatman’s payroll rubber-stamped prescriptions for false drug tests. He often submitted urine and saliva samples from employees instead of patients — drugged-up residents couldn’t have passed. He also forged patient signatures on treatment sign-in sheets, and ordered tests before residents even saw a doctor. Allergy tests were ordered whether or not residents had allergies.

Convicted of felony credit-card skimming, Chatman isn’t even allowed into the drug-treatment industry. He illegally installed his wife Laura as the straw owner while running the operations himself.

Chatman overdosed on greed, and pleaded guilty. His sober home will be a federal jail cell. He’ll have decades to shape up and dry out when sentenced.

Could bogus health scams emerge from health reform

It’s anyone’s guess what will happen with the off-again, on-again attempts to repeal/replace/improve the Affordable Care Act.

But one thing seems sure: Republicans in Congress and the White House seem bent on pushing a couple of changes every scam artist should love.

The first is H.R. 1101, the Small Business Health Fairness Act of 2017. It would allow health insurance to be sold through association health plans. It sounds like a solid idea — get a bunch of like-minded people or businesses together, form your own plan and buy coverage in the unregulated secondary market. There’s a lot of problems here, as consumer and healthcare groups point out in a recent letter to Congress.

Our biggest beef is that the bill would exempt AHPs from some state regulation. Lax scrutiny could tempt scam artists to set up their own AHP, collect a ton of premiums and then disappear. It’s happened before.

The same scenario is likely with selling health insurance across state lines. The lack of regulatory oversight is an invitation for scam artists to defraud individuals and businesses by setting up bogus health plans.

The White House likens selling health insurance across state lines to selling auto insurance across state lines, which to our knowledge doesn’t happen. Do supporters of these proposals simply not understand the potential consequences for consumers?

Most supporters probably don’t remember the last wave of bogus health plans during 2000-2002. The Government Accountability Office reported 144 unauthorized entities peddled bogus health coverage to more than 200,000 policyholders. The cons stole at least a quarter billion dollars in lost premiums and unpaid medical claims many victims were forced to pay out of their own pockets. One family had a child with brain cancer, only to discover they’d bought fake coverage.

Stricter laws and tighter regulation followed, and the bogus health plans seemed to disappear. Whatever happens with healthcare, let’s hope Congress has the wisdom to first do no harm in aiding and abetting healthcare scams.

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