Insurance companies handle a lot of cash: a lot of money flows in (insurance premiums); a lot of money flows out (insured losses, administrative expenses, the cost of reinsurance). For legitimate carriers, a good year results when the premium dollars collected exceed total losses combined with total expenses. By prudently investing premium dollars, you can even make money when total costs slightly exceed the premium income.
What if you could eliminate, or at least severely limit, the dollars flowing out? What if you set up a scheme where you collect premium dollars, but you eliminate the step of purchasing insurance? Perhaps you pay some small claims, to keep up appearances. But when the catastrophic losses hit, you ignore them.
As far as criminal schemes go, this one is pretty stupid. There is an inevitable - and I do mean inevitable - day of reckoning, when the unpaid claims finally catch up with you.
All of which serves as an introduction to Donald Touche, Richard Standridge and Robert Jennings, operators of a diverse group of Third Party Administrators: Don ran Stat-Care out of California; Rich ran Global Healthcare and EOSHealth out of Arizona; and Bob operated Interstate Administrative and TPAOne out of Illinois. Their primary clients were professional employer organizations (PEOs). For three years - 2000 to 2003 - they sold insurance through non-existent companies: Regency Insurance of the West Indies and TransPacific International Insurance. On February 13, 2008 the house of cards came tumbling down, when all three were convicted of mail fraud, wire fraud and money laundering by a federal jury in Jacksonville, Florida.
The boys are facing some pretty serious jail time: 100 years each plus millions of dollars in fines. Gosh, it seemed like a good idea at the time...
The owners of several PEOs testified for the government. They admitted to knowing that the insurance was fraudulant. They are also going to jail, but unlike Don, Rich, and Bob, they have a chance of getting out to enjoy their retirement years.
The most damning testimony was provided by workers with catastrophic injuries. One man had lost both legs, but was unable to obtain prosthetics. Many severely injured workers had not collected any workers comp benefits. Insurance fraud of this type is not a victimless crime.
This sorry saga comes to a formal end in May, when the sentences are handed down. We are unlikely to see these three entrepreneurs on the street ever again. Their money laundering days are over, but it's nice to imagine that their steamy days in the prison laundry have only just begun.