* 36 accused of scheming to defraud
* Auto insurers targeted in alleged $279 mln scheme
* Scheme said to take advantage of NY no-fault law
By Jonathan Stempel and Ben Berkowitz
NEW YORK, Feb 29 Three dozen people were
charged with scheming to defraud automobile insurers out of more
than $279 million in accident benefits, in a scheme said to
involve doctors, lawyers and patients who were coached to fake
Federal and New York City investigators said the defendants
took part in a "medical fraud mill" involving bogus clinics in
and around New York City that billed insurers for unnecessary or
They said the ring was designed to exploit New York's
"no-fault" auto insurance law, which requires vehicles
registered in the state to carry insurance that lets drivers and
passengers obtain up to $50,000 for accident injuries,
regardless of fault.
Several of the defendants are of Russian descent, and 35 of
the defendants live in New York or New Jersey.
Authorities called the criminal case the largest involving
no-fault auto insurance fraud, and the first of its kind to
allege violations of the federal Racketeer Influenced and
Corrupt Organizations Act (RICO), a law often used to fight
They estimated that $113 million was actually lost in the
scheme, which began around 2007. Ten doctors and three lawyers
were among those charged. The indictment was unsealed Wednesday
in the U.S. District Court in Manhattan.
"Today's charges expose a colossal criminal trifecta, as the
fraud's tentacles simultaneously reached into the medical
system, the legal system, and the insurance system, pulling out
cash to fund the defendants' lavish lifestyles," U.S. Attorney
Preet Bharara in Manhattan said in a statement.
Auto insurers such as Allstate Corp consider New
York one of the most difficult markets in which to profit, in
part because of the no-fault law.
At a press conference in Manhattan, Bharara said "pretty
much every" insurer that participates in New York's no-fault
program was a target of the alleged fraud. Wiretaps were also
used in the investigation, he said.
UNDERCOVER COPS POSED AS PATIENTS
According to the indictment, defendants Mikhail Zemlyansky,
who used aliases like "Russian Mike," and Michael Danilovich,
also known as "Fat Mike," directed one of the two main branches
in the alleged scheme, while defendants Yuriy Zayonts, also
known as "KGB," and Mikhail Kremerman ran the other.
Investigators said doctors were paid to set up fake bank
accounts and prescribe unnecessary procedures or treatments,
such as MRIs, neck and back braces, and five-day-a-week physical
Lawyers, meanwhile, filed fake personal injury lawsuits to
obtain additional awards, while defendants known as "runners"
got cash kickbacks for referrals and to coach patients on how to
fake injuries, the investigators said.
"The criminal enterprise, while it lasted, was obscenely
profitable," said Janice Fedarcyk, an FBI assistant
Raymond Kelly, New York City's police commissioner, at the
press conference said two of the "patients" in the scheme were
in fact undercover New York City police officers.
"Our undercover officers were treated like thousands of
other 'patients' receiving therapy, tests and medical equipment
they didn't need," he said.
All 36 defendants were arrested on Wednesday. Thirty-five
were expected to be arraigned in Manhattan on Wednesday. The
36th lives in Duluth, Minnesota, and is expected to appear in
federal court there on Thursday.
Each defendant faces a maximum of 30 to 70 years in prison
The charges came one day after the arrests of Texas doctor
Jacques Roy and six others in a separate fraud case. Those
defendants were charged with trying to defraud federal
healthcare programs out of nearly $375 million.
FRAUD IN NEW YORK
A lawyer for an insurance industry-backed lobbying group
said he hopes Wednesday's arrests will persuade lawmakers to
move more aggressively against auto insurance fraud.
"It's great that we got 36 arrests ... but we should also
give our local DAs (district attorneys) power under state law,"
said David Schwartz, a lawyer for New Yorkers Stand Against
In a study released last year, the Insurance Research
Council said 20 percent of no-fault claims in New York City in
2010 had elements of fraud, and as many as one-third of claims
appeared to be inflated.
Meanwhile, the Insurance Information Institute estimated
last year that insured drivers in the state annually made more
than $200 million of excess premium payments because of fraud.
Allstate, the largest publicly traded U.S. home and auto
insurer, described the situation in New York as an "insurance
fraud crisis." A spokeswoman was not immediately available to
comment on the indictments.
The case is U.S. v. Zemlyansky et al, U.S. District Court,
Southern District of New York, No. 12-cr-00171.