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Press Release | NO. 2004-038

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Press Release # 038
Thursday, April 15, 2004

New York City Police Commissioner Raymond W. Kelly, Queens District Attorney Richard A. Brown, State Insurance Department Superintendent Gregory V. Serio, State Taxation And Finance Department Commissioner Andrew S. Eristoff And State Banking Department Superintendent Diana Taylor Announce The Arrest Of 30 Individuals Participating In An Insurance Fraud Scam

New York City Police Commissioner Raymond W. Kelly, Queens District Attorney Richard A. Brown, State Insurance Department Superintendent Gregory V. Serio, State Taxation and Finance Department Commissioner Andrew S. Eristoff and State Banking Department Superintendent Diana Taylor today announced the arrest of 30 individuals who were part of a sophisticated insurance scam involving lawyers, medical professionals, individuals posing as injury victims and a member of the Bonanno crime family. The arrests were carried out by the New York City Police Department's Auto Crime Division commanded by Deputy Inspector Howard R. Lawrence.

Case Detective David Moore and the other NYPD investigators began " Operation Fraud Factory" in January of 2003 initially focusing on a clinic in the Richmond Hill section of Queens called the Medical Arts Center. The investigation widened to show that this criminal operation covered the entire spectrum of a medical insurance fraud scam involving automobile accidents. Investigators believe this group generated between eight and nine million dollars a year.

Commissioner Kelly said, "Insurance fraud is taking money from the pockets of law abiding New Yorkers. This is one 'factory' we're all happy to see close."

The lowest level operators in this scam were the "victims" or "patients" recruited by "runners" to participate in bogus accidents. Sometimes the accidents were staged between two cars involved in the scheme or an accident was created with an unsuspecting second vehicle. Additionally, the runners employed word of mouth within their networks of acquaintances to locate individuals involved in real auto accidents to play victim. The runner's role started with drafting the players, but also included making sure the accidents happened believably and coaching the victims through the medical and legal process that followed.

At the accident scene, the participants would obtain a Police Accident Report or PAR. The proprietor of the medical clinic, Arthur Bogoraz, and Bonanno associate Joseph Fratta reviewed the PARs to determine which ones seemed least likely to raise the suspicion of the insurance companies or the authorities. A rear-ended car that was occupied by three individuals was an ideal type of accident because it posed little question regarding cause and three individuals could generate a separate claims.

The accident victims arrived at the Medical Arts Center for examination. The doctor and other medical professionals then approved a battery of tests including dental and psychological exams that were usually not performed. Insurance companies generally have a limit of 30 days and $50,000 on medical procedures performed after an auto accident. As a result, the clinic quickly did everything it could to maximize profit. One standard practice showed patients receiving two unnecessary MRIs costing $1,000 each. The runners received approximately $1500 to $2300 for each patient they referred to the center. Each patient was paid $500.

Lawyers and paralegals solicited business from the patients in the confines of the clinic * which is in and of itself an illegal practice * and filed suit against the automobile insurance companies. Insurance companies customarily paid claims of $5,000 or more to avoid the cost of a trial. This money was divided among the lawyers, the victims and the runners with kickbacks to Joseph Fratta and Arthur Bogoraz.

In one particular case, an accident victim, who was unaware of the scam being perpetrated, arrived at the clinic for medical care. She received shoddy and abbreviated treatment, but the scammers attempted to charge her insurance company for as many tests as they could. This woman still experiences pain, but is unable to receive the treatment she needs because her insurance company shows her as fully examined.

Some of the fraudulent practices were captured on police videotapes. Four search warrants executed in October 2003 yielded approximately $100,000 and two guns.

This investigation is ongoing and more arrests are expected.

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