New York Restaurateur Charged In No-Fault Auto Insurance Fraud Scheme

Federal law enforcement officials report they arrested Zhan Petrosyants, charging him with operating an extensive no-fault automobile insurance fraud scheme that involved submitting tens of millions of dollars in fraudulent medical claims and laundering the proceeds.

Petrosyants, 44, also known as “Johnny,” of Edgewater, New Jersey, is charged with conspiracy to commit healthcare fraud, conspiracy to commit wire fraud, aggravated identity theft, and conspiracy to commit money laundering.

The scheme was allegedly carried out between 2018 and 2023, causing insurance providers to be billed tens of millions of dollars in fraudulent no-fault medical claims.

The arrest of Petrosyants, who media reports describe as a restaurateur and close friend of former New York City Mayor Eric Adams, comes as lawmakers in Albany are currently embroiled in budget negotiations where one sticking point has been a series of auto insurance reforms proposed by Gov. Kathy Hochul that are aimed in part at combating no-fault insurance fraud.

NY Lawmakers Urged to Have Faith in Auto Insurance Reform Numbers. But Do They?

A lawyer for Petrosyants told The New York Times that he had pleaded not guilty and intends to “vigorously” defend against the charges.

This is not the first instance of auto insurance related charges involving Petrosyants. In 2014, he and his twin brother, Robert, pleaded guilty to a check cashing scheme designed to evade anti-money laundering reporting requirements. The scheme involved no-fault accident claims.

Current Indictment

In the indictment filed yesterday in federal district court in Manhattan, prosecutors maintain that insurance claims submitted by Petrosyants and his co-conspirators were for services that were never provided, services that were unnecessary and excessive, and services that were billed under the names of medical corporations that were not actually owned, operated, and controlled by licensed medical professionals, as required by state law.

According to prosecutors, to carry out the scheme, Petrosyants recruited purported physicians, psychologists, and other clinicians under whose names the fraudulent no-fault insurance claims were submitted. Prosecutors say the conspirators frequently used the license information and signatures of licensed psychologists and medical professionals.

If insurance companies had known that the medical corporations were owned and controlled by non-medical professionals, or that the claims were inflated with testing or services that were not medically necessary, they would have denied payment for the claims, prosecutors stated.

According to the indictment, after claims were submitted, Petrosyants allegedly then used them to obtain a portion of the claim amounts through financing agreements with funding companies. One such company that was affiliated with an unnamed law firm provided quick access to advances and “provided a veneer of legitimacy to the scheme,” the indictment says.

Petrosyants received a referral fee from the funding company as well as kickback payments from his co-conspirators, according to the indictment. Further, prosecutors say the funding company paid millions in advances on no-fault medical claims to two shell corporations and was then transferred to a bank account nominally held by a jewelry business based in the Diamond District of midtown Manhattan.

No-Fault Law

Every vehicle registered in New York State is required to have no-fault automobile insurance, which enables the driver and passengers of a registered and insured vehicle to obtain benefits of up to $50,000 per person for injuries sustained in an automobile accident, regardless of fault. This no-fault law requires prompt payment for medical treatment, thereby obviating the need for claimants to file personal injury lawsuits in order to be reimbursed. Under the law, patients can assign their right to reimbursement from an insurance company to others, including medical clinics that provide treatment for their injuries.

“As alleged in the indictment, Zhan Petrosyants orchestrated a complex scheme to cheat insurance providers out of millions of dollars,” said U.S. Attorney Jay Clayton. “No-fault insurance fraud schemes raise costs for everyone and reduce benefits to consumers, an unnecessary burden we all unfortunately share. Today’s arrest demonstrates this Office’s continuing commitment to rooting out this pernicious type of fraud that imposes costs on all New Yorkers.”

The Federal Bureau of Investigation (FBI) joined Clayton’s office in bringing the indictment.

Backers of Hochul’s auto insurance reforms seized on the news to press their case.

“Anyone who says auto insurance fraud isn’t a serious problem is willfully ignoring the facts. This case makes clear that no-fault insurance fraud is not a victimless crime – it is a widespread, organized problem that acts as a hidden tax on New Yorkers and drives up costs for every honest driver,” said James Freedland, a spokesperson for Citizens for Affordable Rates (CAR). “It’s time the legislature takes on auto insurance fraud head-on by passing the Governor’s reforms in the state budget.”

Hochul’s proposals attempt to address staged accidents by creating new liability for criminals orchestrating fraud, not just drivers; curtail “jackpot” lawsuits by changing the no-fault threshold by tightening the definition of serious injury; change comparative fault rules to limit non-economic damages for drivers who are “mostly” at fault; mandate that insurers offer discounts for safe driving apps/devices; and discourage excess profits by requiring insurers to return profits over a certain threshold to policyholders.

The New York State Trial Lawyers Association (NYSTLA) represents the main obstacle in the legislature to Hochul’s auto insurance reforms. NYTSLA has argued that Hochul’s savings would pad insurers’ profits while restricting consumers’ rights to sue and the damages they can be awarded.