Fraud Roundup

July 24, 2006

Montana takes action against agent

A Helena, Mont., insurance agent had his license suspended and was ordered to stop doing business in Montana after allegedly committing insurance fraud and deceptive and illegal sales practices, the state auditor’s office said.

Bart Murnion’s attorney, Linda M. Deola, said the auditor’s actions were “without merit” and her client has requested a hearing.

Murnion, a Montana resident who was living in Minneapolis at the time of the latest action, was the subject of an earlier investigation by the auditor’s office, said Deputy Securities Commissioner Lynne Egan.

The first came after Murnion was accused of telling investors in the Billings, Mont., area that they could earn a higher rate of return on their investments by lending money to Murnion and his wife, Kaia, through a promissory note.

Murnion apparently told investors their money would be used for a business expansion, but no expansion occurred and the Murnions declared bankruptcy, the auditor’s office said.

In early 2006, Murnion was banned from selling securities in Montana, Egan said.

In late May, the auditor’s office learned that Murnion was traveling to Montana and conducting insurance business without a license, Egan said.

Murnion told investors he worked for Sentinel Financial and that he offered an annuity product through Allianz Life, the auditor’s office said. He also allegedly told investors he charged $1,500 for his services.

A spokesman for Allianz Life said Murnion had been authorized to sell its annuity products until June 2003.

Deola said Murnion has been called for military duty and a hearing set for later this year will likely have to be rescheduled.

Twenty-five suspects indicted in California

Twenty-five suspects in connection with a major insurance fraud investigation dubbed “Operation Cashout” have been indicted, according to the California Department of Insurance. Twenty suspects were arrested, and five suspects remain outstanding.

All 25 suspects were charged with felony insurance fraud. Khai Van Nhin, 39, of San Jose, the main suspect and orchestrator of the scheme, was charged with 14 felony counts of insurance fraud and two felony counts of forgery. Many of the suspects have been arrested this morning by task force investigators.

Operation Cashout involved a ring of suspects who conspired to report auto accidents that never occurred to file false insurance claims, CDI said. The suspects would typically claim they were driving on a freeway when another vehicle changed lanes striking the suspect’s car, forcing him or her into a guard rail. Both vehicles reportedly involved in the claim were usually owned and driven by the ring members. They would file false vehicle damage claims and “cash out” the settlement, thereby taking the money but not repairing the vehicle.

They would use the same damaged vehicle to make repetitive false claims with different insurance companies. Often, the driver and passengers would also submit false bodily injury claims as part of the phantom accidents to obtain additional insurance proceeds, CDI said.

The felony charges stem from 22 phantom accidents involving 12 cars. Various insurance companies became suspicious after noting some suspects were using the same addresses and vehicles in claims dating from 2000 through August 2005. The alleged fraud ring was brought to the attention of the task force by Farmers Insurance, State Farm and Safeco Insurance companies. The charged claims involved approximately $400,000 in insurance payments.

The indictment was returned by the grand jury after the presentation of more than 50 witnesses including individuals from the Special Investigative Units of several insurance companies and attorneys. Warrants remain outstanding for Khai Van Nhin and Mason Son Trans, 38, of San Jose, the other primary suspect. Nhin’s bail was set at $1 million. Bail for Trans was set at $75,000. Anyone with information concerning the whereabouts of suspect Nhin and Trans should contact the Department of Insurance’s Fraud Division at 408-779-7200.

Also providing information were the SIUs of State Farm, Progressive, AAA, Hudson, Farmers, Safeco, Qestrel, David Morse and Associates, 21st Century, Western General and Western United Insurance Companies. The Santa Clara County District Attorney’s office is prosecuting the case.

If convicted, Nhin faces a maximum sentence of 18 years in state prison. The other suspects face maximum prison terms ranging from five to 10 years.

Montana farm insurer pleads guilty

The former president of Crop Hail Management Inc. in Bigfork, Mont., pleaded guilty wire fraud and money laundering. Myron “Mike” Felt will be sentenced Oct. 19.

Felt admitted defrauding 23 insurance companies and other business and state governments with a scheme to keep farmers’ insurance premiums.

In an offer of proof filed in court by Assistant U.S. Attorney Kurt Alme, the government laid out its case against Felt, who is 77.

According to the court document:

•Felt was president of Crop Hail Management from 1998 through 2003 and had been in the crop-insurance business since 1953.

•Beginning in 2001, Felt had Crop Hail Management issue insurance policies on behalf of other insurance companies for farmers in Montana and other states. When some of the farmers paid premiums to him, he deposited them in his personal accounts.

•Crop Hail Management kept those “out-of-system” policies separate from the policies for which premiums were properly applied to the accounts.

•Some farmers made claims against the out-of-system policies, not knowing that they had no valid coverage. He paid claims from the diverted premiums he had not yet spent. In 2001, Felt kept $141,000 in premiums, not including the amount he paid out in claims.

•In 2002, Felt kept about $486,000 in diverted premiums, not including the claims he paid. If farmers submitted claims on policies that Felt had pocketed the premiums for, he paid the claims from premiums he had not yet spent.

By 2002, Felt did not have enough diverted premiums to pay all the claims. He began “flipping” the numbers on policies. He would submit to insurance companies a claim on a policy that he had taken the premium payments for, using a policy number assigned to a legitimate, paid-up policy.

Felt submitted claims against flipped policies totaling $863,000 for payment by other insurance companies. The companies paid Crop Hail Management about $656,000.

Twenty-three insurance companies, two reinsurance brokers and two managing general agencies lost premiums and/or commissions in the scam. Five states lost premium taxes on the diverted premiums.

One company, Heartland Crop Insurance Inc., in Topeka, Kan., received a false report e-mailed from Crop Hail Management. That is the basis for the wire-fraud charge. Another company, Fagan Grain Inc., received a claim check of about $60,000 from Crop Hail Management; Felt knew the money was from premiums he had diverted. That is the basis for the money laundering charge.

Felt turned himself in to authorities, reportedly before the crimes were discovered.

He entered into a plea agreement with prosecutors. U.S. District Judge Donald Molloy may consider Felt’s admissions at sentencing.

The plea agreement does not guarantee that Felt will spend no time in prison. It does allow him to stay out of prison until he is sentenced.

U.S. Attorney Bill Mercer said Molloy may consider such things as the number of victims in the case and the fact that Felt was in a position of leadership within the company while he was engaged in fraud.

Mercer said prosecutors will ask for Felt to serve some prison time.

The agreement also says that no more charges will be brought against Felt or any employees of the management company.

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