Examples of Insurance Fraud Investigations - Fiscal Year 2011
The following examples of insurance fraud investigations are written from public record documents on file in the court records in the judicial district in which the cases were prosecuted.
New Mexico Man Sentenced for Defrauding Insurance Company
On July 28, 2011, in Las Cruces, N.M., Joseph Reyes Montes was sentenced to 12 months and one day in prison, followed by three years of supervised release, and ordered to pay $149,779 in restitution to Farmer’s Insurance Company. Montes, a claims supervisor for Farmer's Insurance Company, pleaded guilty in October 2010 to conspiracy to launder money obtained by making fraudulent insurance claims. According to court documents, between March 2007 and August 2009, Montes conspired with his co-defendant, Deniece Sanchez, to submit $150,000 in fraudulent insurance claims to Farmer’s Insurance Agency on approximately 30 separate occasions. Montes laundered the stolen money through Sanchez’ business bank account to give the funds the appearance of legitimate business income. Sanchez also pleaded guilty in October 2010 to conspiracy to launder money and is awaiting sentencing.
Tennessee Man Sentenced to an Eight Year Prison Term on Tax Charges
On July 21, 2011, in Nashville, Tenn., Luther T. Smith of Crossville, Tennessee, was sentenced to 96 months in prison, followed by three years of supervised release, and ordered to pay $276,668 in restitution to the IRS. Smith was found guilty on two counts of income tax evasion and one count of filing a false income tax return. During the trial, evidence revealed that Smith, an independent life insurance agent, failed to report income received during 2001, 2002, and 2003. During this time, Smith was living a lavish lifestyle, purchasing property on Franklin Road in Franklin, Tennessee, renting two apartments in Nashville, paying in excess of $107,000 for decorations and furnishings and purchasing appliances, electronics, furniture and fine jewelry, including a Rolex watch. Smith also paid for cruises for friends and family members. During the sentencing hearing, evidence presented also revealed that Smith, as a licensed insurance agent, was engaged in an illegal rebating scheme, in which a portion of the agent’s commission was returned back to the insurance policy holder. Smith’s insurance license was revoked by the State of Tennessee Department of Commerce and Insurance in January, 2011. The government also noted that Smith’s conduct had been on-going for almost 10 years and that he had not been paying his fair share of taxes as all U.S. Citizens are required to do. In determining Smith’s sentence, the judge applied enhancements for obstruction of justice, for using sophisticated means to commit the offense and for failing to report to the IRS more than $10,000 of income from criminal activity.
Former County Assessor for False Property Assessment; Husband Sentenced for Conspiracy to a Defraud Bank, Insurance Company in False Cattle Theft Claim
On March 22, 2011, in Springfield, Mo., Sandra Bryant-Littles was sentenced to 4 months in prison and ordered to pay more than $2,000 in restitution and her husband Lonnie Utah Littles was sentenced to 15 months in prison. According to court documents, Bryant-Littles and her husband owned personal property under their own names and under the name of Poco Cala Ranch, from December 31, 2006, until February 19, 2009. During that time, Bryant-Littles admits she filed false personal property tax assessment lists for herself and for Poco Cala that intentionally omitted substantial property that was required to be reported to assess personal property taxes. For 2007 and 2008, Bryant-Littles failed to report or assess personal property tax for six vehicles, a motorcycle, two tractors, three utility and flat-bed trailers, a horse trailer, and an unknown number of cattle. In addition, court documents show that Lonnie Littles defrauded a bank and an insurance company by using a line of credit from the bank to obtain money and property, while at the same time selling cattle that were collateral on the loan, in violation of his contract with the bank. Littles also admitted that he contacted his insurance representative on December 17, 2008, in order to increase his insurance coverage on his cattle, from $60,000 to $100,000. Then, shortly before a bank representative was scheduled to inspect his cattle, Littles conspired with his ranch hand, Jesse Rice, to falsely report the cattle stolen. Littles told Rice to make the false report the weekend of February 8, 2009, while Littles and his wife were out of town. On February 8, 2009, Rice contacted the Christian County Sheriff’s Department to report the theft of 53 head of cattle, although no cattle actually had been stolen. On the same day, Littles filed a fraudulent insurance claim for more than $66,000. Rice pleaded guilty to conspiracy to commit bank fraud and is currently awaiting sentencing.
Adjuster Receives Prison Time for Role in Tobacco Insurance Fraud Scheme
On January 31, 2011, in Raleigh, N.C., Dennis Wray Hawley, of Wilson, North Carolina, was sentenced to 12 months and one day in prison, followed by two years of supervised release, with the first 12 months under house arrest. The Court also fined Hawley $158,000, which represents the proceeds from his crime. On July 27, 2009, Hawley pleaded guilty to two counts of aiding and abetting false statements in connection with the Federal Crop Insurance Program. Hawley, an insurance adjuster and president of Dennis Hawley, Inc., worked for one of the insurance agencies contracted by the government to service crop insurance policies. As such, he was prohibited from having a business relationship with any insurance agent. According to court documents, in 2005 and 2006 Hawley falsely declared he did not have a business relationship with ARMTech Insurance Services. In both of those years, Hawley received checks that represented premiums collected as a result of the sale of crop insurance policies. This payment was made for his role in signing false and fraudulent crop insurance claims.
Crop Insurance Agent Sentenced for His Part in a Tobacco Insurance Fraud Scheme
On January 14, 2011, in Raleigh, N.C., Robert Carl Stokes, of Wilson, North Carolina, was sentenced to 30 months in prison, followed by three years of supervised release with the first 18 months of supervised release to be served under house arrest. In addition, Stokes was ordered to pay a total of over $16 million in restitution. According to the plea agreement, Stokes agreed to forfeit $56,000, which was seized on November 16, 2006, and his interest in several real properties in North Carolina and a Ford vehicle. Further, Stokes agreed to forfeit accounts receivables totaling more than $260,306. According to court documents, Stokes, owner and operator of The Hallmart Agency, Inc., sold both federal and private crop insurance. From approximately 2003 until December 2006, Stokes recruited farmers to enter into fraudulent schemes to defraud crop insurance companies of funds ultimately reimbursed by the United States government by assuring the farmers of profitable insurance claims regardless of whether or not the farmers actually suffered any crop loss. Stokes and other co-conspirators then worked with the farmers to make false crop insurance claims, and to hide some or all of their tobacco production by selling it in nominee names or for cash to co-conspiring warehousemen. The co-conspirators also misrepresented the truth of farm operations in a variety of documents, including applications, reports of actual production history, acreage reports, and claim forms made and submitted in support of crop insurance coverage and claims that failed to truthfully show who had an insurable interest and who really suffered a loss and the extent of that loss, which were submitted to the Risk Management Agency and private entities. The Risk Management Agency is an agency of the United States Department of Agriculture.
North Carolina Man Sentenced in Tobacco Insurance Crop Fraud Scheme
On January 13, 2010, in Raleigh, N.C., Roy Johnson Raynor, of Rocky Mount, North Carolina, was sentenced to 12 months in prison, followed by two years of supervised release, with the first 12 months of supervised release to be under house arrest. In addition, Raynor was ordered to pay a $100,000 fine. Raynor pleaded guilty on July 20, 2010, to conspiring to make false statements, to making material false statement, and to committing mail and wire fraud. According to the court documents and statements made in open court, Raynor owned and operated Raynor Warehouse, Inc., and Raynor Seed Company. As a tobacco warehouseman, Raynor would buy tobacco from farmers who would then file false crop insurance claims. He then brokered the tobacco to a tobacco merchant and processor and others. Raynor would pay the co-conspiring farmers with checks, concealing the source of the money by issuing the check in amounts less than $10,000 so as to evade the federal reporting requirements. From October 2005 to December 2007, Raynor issued at least 130 checks totaling approximately $1,451,084 payable to either nominee names or co-conspiring farmers. In addition, Raynor created false tobacco sale bills which another farmer used in connection with a federal claim review. During the course of the federal investigation, Raynor provided false and misleading information to federal law enforcement officers.
Second Defendant Sentenced in Tobacco Insurance Crop Fraud Scheme
On January 13, 2011, in Raleigh, N.C. Mark Davis Pridgen, of Wilson, North Carolina, was sentenced to 18 months in prison, followed by three years of supervised release, with the first 18 months of supervised release to be under house arrest. In addition, Pridgen was ordered to pay restitution to the following entities: $10,079,814 to USDA/Risk Management Agency; $188,014 to Rural Community Insurance Company; and $13,007 to American Agri-Business Insurance Company. Pridgen, along with farmers, crop insurance adjusters and agents, and others, worked together to defraud crop insurance companies of funds by filing false insurance claims ultimately reimbursed by the United States Department of Agriculture; by making material false statements in connection with the Federal Crop Insurance program; and by laundering the proceeds and profits of the underlying fraud. From 1987 to 1992, Pridgen was a partner in Beaufort Leaf Tobacco Company, a company formed for the purpose of buying and selling tobacco. In 1992, 1993, and 1998, Pridgen was an officer of Tobacco Insurance Agency, Inc., a North Carolina Corporation, formed for the purpose of selling crop insurance. According to court documents, Pridgen and co-conspirators worked with the farmers to make false crop insurance claims, and to hide some or all of their tobacco production by selling it in nominee names or for cash. Pridgen bought and sold tobacco on contracts secured in other conspirators’ names. Pridgen, who has not held a valid insurance license since 1991, sold federal multi-peril crop insurance and private crop hail insurance through The Hallmart Agency, Inc., and received commissions earned on the policies he sold. The commission payments to him were disguised by being paid through business entities in his wife’s name. In total, Pridgen received in excess of $647,000 in criminal proceeds from the various fraud schemes.
Four Sentenced in International Insurance Fraud Scheme
On December 1, 2010, in Tampa, Fla., James Connally, William Broughton, Richard Peterson and William Clancy were all sentenced in connection with a massive international insurance fraud and money laundering scheme. According to court documents, the defendants utilized a series of sham offshore companies, rented assets, and falsely-inflated financial statements to issue worthless insurance policies, reinsurance, and financial guarantee bonds across the globe. In the Caribbean island nation of St. Christopher and Nevis (St. Kitts and Nevis), the defendants formed shell “insurance” companies that were never licensed to engage in the business of insurance. In Costa Rica, the defendants formed additional shell companies as wholly-owned subsidiaries of the St. Christopher and Nevis “insurance” shells. And in Panama and elsewhere, the defendants located assets – usually bogus certificates of deposit – for which they arranged to pay “rental fees” so they could display those assets on the “insurance” companies’ financial statements. The defendants then generated fraudulent financial statements and unqualified audit opinions, based in part on the “rented” assets, which created the illusion that the “insurance” companies had the capitalization necessary to issue insurance and pay claims. The defendants’ bogus “insurance” companies issued worthless insurance policies, reinsurance, and financial guarantee bonds to victims all over the world, including in the Middle District of Florida through promissory note programs known as Premier Holidays International, Inc. and World Vision Entertainment, Inc. Victims who invested in the promissory notes were told that the notes were backed by insurance in the form of financial guarantee bonds. Because those bonds were fraudulent, however, the victims ended up losing more than $50 million. William Broughton received 48 months in prison, three years supervised release and ordered to pay more than $13 million in restitution. William Clancy was sentenced to 24 months in prison; three years supervised release and ordered to pay more than $9 million in restitution. Richard Peterson received 30 months in prison and three years of supervised release. James Connally received 24 months probation but was ordered to pay more than $13,000 in restitution.
Two Defendants Sentenced in $1.2 Million Money Laundering Scheme
On October 26, 2010, in Charlotte, N.C., Donald Eugene Bess, of Bessemer City, was sentenced to 24 months in prison and ordered to pay $549,789 in restitution. On June 7, 2010, Ray Eugene Rohm, of Dallas, North Carolina, was sentenced to 24 months in prison and ordered to pay $842,288 in restitution. In addition, each defendant was ordered to forfeit all property involved in the money laundering conspiracy. According to court documents, Rohm owned and operated Rohm Enterprises, a window treatment services business and Bess operated a body shop business named Bess Used Car Wrecker Service. From in or about April 2001 to in or about January 2007, Bess and Rohm deposited into their respective business accounts $1.2 million in fraudulently obtained checks generated by a former claims manager of Farm Bureau Insurance. Although Rohm and Bess were aware that the checks were obtained through an insurance fraud scheme, they deposited the checks on his behalf and collected a fee in return for conducting the financial transaction.