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Flash and Cash
Crime rings rip off billions of taxpayer dollars
By TROY ANDERSON, Staff writer
POSTED: 12/31/69, 4:00 PM PST | UPDATED: ON 05/12/2007
Flamboyant and ostentatious, they drive luxury cars, unwind in multimillion-dollar mansions, flaunt designer clothes and flash dazzling jewels.
But behind the glitz lurks what law enforcement officials say is a brazen new breed of organized criminal - Eurasian mobsters who carry out brutal murders, stockpile assault rifles and launder cash around the globe.
And the burgeoning Eurasian crime syndicates are increasingly funding their international empires by siphoning billions of dollars from taxpayer-funded health and welfare programs across the United States.
"It's a huge problem, and Los Angeles is the hot spot for this type of crime," said Assistant U.S. Attorney Consuelo Woodhead, who oversees health care fraud prosecutions.
"Maybe we still have a little bit of the Wild West here, an area that attracts those who want to get rich quick. It's also because we have a very diverse, elderly population with a lot of recent immigrants who aren't necessarily familiar with the Medicare and Medi-Cal systems."
Hundreds of billions
While exact figures are difficult to tally, experts estimate as much as $300 billion a year is lost to health care fraud in the United States - more than half of it to organized crime.
"It's hundreds of billions of dollars," said Malcolm Sparrow, a professor at the Harvard University Kennedy School of Government and a national expert on health care fraud. "The only question is what is the first digit."
Since 2000, the Los Angeles County Health Authority Law Enforcement Task Force has arrested more than 110 Eurasian, Middle Eastern, Nigerian and Asian organized-crime members suspected of health care fraud.
Another team, the Southern California Eurasian Organized Crime Task Force, says it has arrested more than 100 suspects in recent years on fraud and other charges.
"We equate this to like the 1930s and '40s Mob," said Glendale Police Department Sgt. Steve Davey, who heads the Southern California team. "We are in a state similar to investigators years ago during the beginning of the La Cosa Nostra investigations.
"We're making headway arresting street-level and midlevel criminals. We have yet to get to the top."
Law enforcement officials estimate more than 2,500 members and associates of Russian and Armenian organized-crime syndicates operate in the county - twice as many as a decade ago.
While the criminals are mostly involved in white-collar offenses, investigators say they have also committed more serious crimes, including murder.
"We had somewhere around 30 shootings and attempted murders just from 2000 to 2003," Davey said.
Murder for profit
Earlier this year, two San Fernando Valley men were sentenced to death for their role in abducting and murdering five Russian immigrants, then dumping their bodies in a Northern California reservoir. A third defendant is scheduled to be sentenced Tuesday.
The three defendants were part of a Russian mob that used ransoms paid for their victims to buy Mercedes-Benz cars, mink coats and an Aspen, Colo., ski vacation.
(In investigating the case, authorities learned that one of the victims was known as a mob "bookkeeper," who kept accounting records for nearly 30 health care businesses suspected of defrauding the government.)
In a county task force investigation of five Glendale and Burbank medical clinics suspected of stealing $25 million from Medicare, officials discovered 41 firearms, ranging from high-caliber assault rifles to a James Bond-type .22-caliber "pen gun."
The team also seized $420,000 in cash and $1 million in jewelry.
"It's equivalent to the cocaine boom of the 1980s," said sheriff's Sgt. Stephen P. Opferman, a member of the regional task force. "(But) it just doesn't involve narcotics - it involves stealing government funds.
"We see these people involved living the same lifestyles. There's a lot of flash and cash - money, jewelry, nice cars and big houses. We are finding people driving three Mercedes, living in $3 million homes - and they have Medi-Cal benefits cards."
$3 billion annual loss
Medi-Cal spends about $34billion annually to provide care for about 7 million indigent Californians - with about $3 billion of that lost to fraud, experts say.
The state Attorney General's Office has a bureau that deals specifically with Medi-Cal fraud. It's prosecuted about 1,000 such cases over the past eight years - double the number for the previous eight years. Most, officials say, are related to organized crime.
And the court-ordered recovery of funds ripped off from Medi-Cal hit a record $274 million in 2005-06, nearly as much as all the money recovered in the previous 15 years combined.
"For every $100 million in Medi-Cal funds we protect, those funds can provide comprehensive treatment for 8,000 breast cancer patients, treat up to 155,000 people suffering from TB or provide up to 645,000 days of nursing-home care," said Joseph Fendrick, who oversees the Bureau of Medi-Cal Fraud and Elder Abuse.
Barbara Siegel, managing attorney at Neighborhood Legal Services in Pacoima, said fraud is driving up the cost of health care and insurance and leaving innocent people with medical bills for services they never received.
"They get a bill and come to us and say, `I never saw this doctor or never went to this lab,"' Siegel said.
And it's not just Medi-Cal that's being targeted. Experts say all county, state and federal health and welfare programs are in the bull's-eye.
As Fendrick's investigators have cracked down on Medi-Cal fraud, many criminals have switched to the federal Medicare program, said Matt McLaughlin, supervisor of the FBI's Los Angeles Area Health Care Fraud Squad.
In a typical scam, crime syndicates send contacts to senior centers, offering nutritional supplements or cash to elderly residents to go to a clinic to fill out Medicare forms and undergo medically unnecessary treatments and tests, McLaughlin said.
Benefit-card numbers are often used to bill for medical equipment. Officials at the U.S. Centers for Medicare & Medicaid Services division office in Los Angeles are currently tracking thousands of bills submitted to Medicare for $5,000 power wheelchairs, prosthetics, oxygen tanks and other equipment that beneficiaries never received or didn't need, officials said.
Victims lose benefits
In August, division officials visited 400 medical-equipment companies in Glendale, Burbank, North Hollywood and other cities throughout the county and removed 70 from the approved Medicare program list because the businesses didn't exist yet were billing Medicare.
"Many people have lost their Medicare benefits as a result of falling prey to these schemes," McLaughlin said.
The FBI and the county task force have dedicated more resources to investigating Medicare scams. The FBI estimates nearly 60 percent of all its Eurasian organized-crime cases involve government fraud.
"Government scams are the bread and butter of these organized-crime groups," said Opferman, the regional task force member. "It's kind of like the Gold Rush. This is the reason they are here.
"You literally have free money being shoveled out, and it's a free-for-all. Any government program is susceptible.
"They exploit loopholes in every handout we have."
Organized crime's sophisticated operations often make it difficult to detect fraud by operating legitimate businesses and using shell companies to launder funds.
Law enforcement officials say billions of dollars are laundered through banks in Russia, Armenia, Switzerland and Dubai in the United Arab Emirates, making it difficult to recover money stolen from U.S. taxpayers.
"Once the money goes overseas, the money trail disappears," Opferman said.
And just as the FBI eventually used tax-evasion charges to prosecute Chicago mobsters in the 1930s, authorities are considering all approaches in dealing with crime syndicates.
"It's kind of the Al Capone approach - looking at whether they are evading taxes," said prosecutor Albert H. MacKenzie, who heads the county's Fraud Interdiction Program.
In the past three years, Mac- Kenzie has identified more than 300 doctors, lawyers and members of organized crime suspected of health care fraud involving more than $200 million in unreported income.
"We have individuals who obtain money and use it to set up clinics that remain in operation for a limited period of time, bill for services and then disappear," said Lance Wong, head deputy district attorney in the Healthcare Fraud Division.
"We have a huge problem here. Committing these crimes is lucrative. And the chance of getting caught is slim because the government just doesn't have the resources to fight it."
Identity theft used
Wong's office is prosecuting a case with organized-crime links that cost Los Angeles city and county taxpayers more than $6.7 million, District Attorney Steve Cooley said. The case is one of a growing number in which organized-crime groups are using identity theft to help commit fraud.
In that case, Glendale residents Samvel Melkonyan, 49, and Tigran Ghalmukhyan, 35, allegedly billed the county for medical services performed from 2002 to 2004 using businesses not incorporated until 2005. A preliminary hearing is set for June 18.
Prosecutors say the suspects stole the identities of nearly 200 county employees - mostly active and retired sheriff's deputies - who were unaware that they were listed as "patients" in the scam.
The men allegedly issued claims to the county for tests administered by fictitious diagnostic clinics in Van Nuys and North Hollywood, prosecutors said.
"The scam was ultimately being run by some Middle Eastern guys living in Dubai," Opferman said. "There are definitely people living a very lavish lifestyle above (Melkonyan)."
Melkonyan's Los Angeles attorney, Michael Geragos, did not return calls for comment. Last week, Geragos' office said he was traveling and could not be reached for comment.
Cooley said virtually no government benefit program is safe.
"The problem is that governmental institutions assume, I think mistakenly, that people who apply for public benefits or compensation are being honest," Cooley said.
"In this day and age, that is an assumption unsupported by reality. ... When you start throwing billions of taxpayer dollars around, you need to figure out who is capable of stealing it and how to prevent it."
Difficult prosecution
Department of Social Services spokeswoman Shirley Washington said the state is working with county welfare offices to investigate and prosecute fraud.
Officials estimate as much as 5 percent of the $5.3 billion spent each year providing food stamps and general welfare benefits is lost to fraud, Washington said.
"Recent data in Los Angeles County shows that in the five-year period from 1999 to 2004, the state and county worked together to reduce or deny welfare benefits in 77,973 cases involving fraud," Washington said. "That's out of 299,048 referrals (in suspected welfare fraud cases)."
Stephen Tidwell, assistant director in charge of the FBI office in Los Angeles, said Southern California has a "significant problem" with organized crime groups defrauding government programs.
"We have the largest number of agents dedicated to working health care fraud of any FBI office in the country," McLaughlin said. "It's a very substantial problem, and we are working in a task force capacity to develop new strategies to increase the impact we can have on those who are committing health care fraud.
"But it's a large problem, and it's going to take our very best to hope to increase our effectiveness."
