Category : White Collar Crime

Health Care Fraud Through Identity Theft and Impersonation

By Brian Barrido, Attorney at Law and Jay Mykytiuk

Health care fraud is committed when someone intentionally submits, or causes someone else to submit, false or misleading information for use in determining the amount of health care benefits payable.  One of the most common varieties of health care fraud is perpetrated through medical identity theft.  Medical identity theft occurs when someone uses another person’s health insurance card or identification with or without her permission to obtain medical services.  An insured person commits fraud when he lends his health insurance card to another, who then impersonates the insured in order to receive free care.  An uninsured person commits fraud when she impersonates the insured to receive benefits she is not entitled to.  Sometimes the imposter has permission from the insured.  Other times, the imposter has stolen the insureds insurance information and used it without permission.  Each activity is a crime.

Consequences of Health Care Fraud

Health care fraud is not a victimless crime.  Medical identity theft can have dire consequences for the individual whose identity is fraudulently used.  It sometimes results in erroneous entries on that persons current medical records or the creation of brand new, fictitious medical records in the victims name.  For the victim, this may mean that a false medical and financial history that follows them around for years.  Imagine failing a physical required for employment due to a disease in your records that does not belong to you, or receiving a co-pay bill for a surgery that you never underwent.  These are only a sample of the personal consequences of medical identity theft.

Beyond the personal effects, health care fraud, including medical identity theft, also has a negative impact on the healthcare system as a whole.  It is estimated that losses due to fraud add $100 billion to the annual cost of health care in the United States. For most employers, fraud increases the cost of providing benefits to their employees and, therefore, their overall cost of doing business. That translates into higher premiums, taxes, and out-of-pocket expenses as well as reduced benefits and diminished quality of care.

Allowing Others To Use Your Health Care Information Could Lead to Prosecution

Whether you allow someone to use your health care information, or you wrongfully use some elses information, you can be prosecuted for fraud.  Health care providers and law enforcement have begun to aggressively pursue those who commit health care fraud. Health care fraud can be prosecuted both civilly and criminally under a variety of statutes and regulations.  The nations largest healthcare network, Blue Cross/Blue Shield estimates that they pursued more than 20,000 cases of health care fraud last year, with 606 cases referred to law enforcement agencies. Of the referrals, 206 resulted in criminal convictions (see http://www.bcbs.com/antifraud).

Too many people do not realize the cost to individuals and the health care industry, which are incurred through health care fraud. For this reason many people do not believe health care fraud to be a serious crime. Penalties for health care fraud can be severe.  Depending upon which statute an offender is prosecuted under, each count could carry a maximum penalty of 10 years.  Fraud resulting in bodily injury to the insured carries a penalty of up to 20 years.  If authorities or a private insurer wants to investigate you for health care fraud, you should immediately contact an attorney.

Real Estate Fraud: State and Federal Fraud Laws

By Brian Barrido, Attorney at Law and Jay Mykytiuk

Anyone who has bought, sold, or shopped for a home this millennium knows firsthand that housing prices have undergone a dramatic and unprecedented increase. In the last two years alone, the price of a home rose 32% in Nevada, 23% in California, and 23% in Washington, D.C. One unfortunate by-product of this red-hot real estate market has been an increase in certain consumer and professional practices that come under the large umbrella known as real estate fraud.

Couples trying to get into their dream houses and real estate insiders trying to tap into massive profit potential have frequently and sometimes unknowingly broken state and federal fraud laws. Generally, fraud is a deliberate misrepresentation which causes another person to suffer damages, usually monetary losses. Examples of fraud in the real estate context include a borrower who exaggerates his financial situation to qualify for a loan, or a real estate professional that misrepresents the value of a property in order to turn a larger profit. Often it involves a combination of both.

Fraud for Housing

As home prices have skyrocketed, many buyers have found that, based on their income and assets or a poor credit rating, their dreams of owning a home have grown increasingly out of reach. Especially in hot real estate markets, potential homeowners often worry about whether they will ever be able to afford a home. Out of desperation, many borrowers, often with the help of loan originators, misrepresent their financial circumstances in an effort to get into a home before they are further priced out of the market. These misrepresentations are commonly known as fraud for housing.

Typical acts of fraud for housing involve providing false information on a home-loan application. Often, loan officers and consumers may work together to manufacture W-2s or credit scores, submit bogus financial and tax documents, or fake employment verifications. Not only are these buyers risking fines and jail time, but may also be drowning in a mortgage payment they cant really afford.

Home buyers could also face fraud charges for so-called “straw buyer” transactions. This real estate transaction involves a buyer with bad credit who finds a stand-in with a better financial position to purchase a home. The stand-in fills out the mortgage paperwork and obtains the property, then relinquishes the deed to the true buyer. While this process may be simply the means to an end of home ownership, it also constitutes real estate fraud.

For borrowers who have been untruthful on their loan documents, being detected is easier than they probably think. The IRS can access mortgage documents in an audit. If a borrower said he made $40,000 a year on his tax forms, but claimed an income of $80,000 on his mortgage application, this discrepancy would be readily apparent. Discovery would likely mean paying back taxes and penalties, and could possibly mean criminal prosecution for Fraud.

Fraud for Profit

Real estate investors and professionals are also at risk of criminal prosecution for certain business practices. In a 2005 report, the Federal Bureau of Investigations Financial Crimes Section has indicated that its main focus in the real estate fraud area is on illegal activity known as fraud for profit. Fraud for Profit is sometimes referred to as “Industry Insider Fraud” and, like it sounds, involves real estate insiders who run afoul of fraud statutes in their pursuit of financial gain.

The most common activity that may land real estate investors and professionals in hot water is known as flipping. Flipping involves buying a house, holding on to it for a short time, and then selling it at a higher price then one paid for it. Often this process involves buying an undervalued house, fixing it up, and putting it back on the market at a higher price. By itself, this process is not per se illegal. Buying low and selling high is still considered good old-fashioned capitalism. But when investors, mortgage brokers, loan officers, and appraisers get together to paint a better picture of a homes worth, fraud for profit is often perpetrated.

There are many variations of illegal flipping, but it often includes inflating appraisals, gifting down payments, drawing up false W-2′s, or writing inaccurate credit letters. The FBI has specifically targeted property flippers. As the industry has become more concerned with fraudulent practices, those engaged in flipping have come under closer scrutiny. Making large profits on quick home sales is certainly still permissible. However, real estate professionals that conduct business with anything less than complete candor may increasingly find themselves targets of fraud investigations.

The Risks

Would-be homebuyers who get caught being creative (Fraud) with their loan applications, will likely have to pay back any money they received, and may even spend time in prison. While to date, prosecutions of borrowers have been rare, the FBIs increased efforts to combat real estate fraud may result in more charges filed against individual homebuyers. The much more common targets of fraud investigations have been real estate investors, mortgage brokers, and appraisers who have engaged in questionable business practices.

Currently, most real estate fraud cases are prosecuted under federal law. Federal statutes include: False Statements on a Loan or Credit Application; Mail Fraud; Wire Fraud; Bank Fraud; and a host of others. In recent years Congress has dramatically increased the penalties for knowingly making false statements for the purpose of influencing the action of any insured banking institution on a loan or certain other types of financial transactions. The current federal penalties for this crime are a maximum of 30 years imprisonment and/or a fine of $1 million.

States have also begun to get tough on mortgage fraud / Fraud for Profit. A new law in Georgia increases the penalties for residential mortgage fraud. Those convicted can be sentenced one to 10 years in prison and be fined up to $5,000, while those found guilty of multiple frauds can be imprisoned for three to 20 years and be fined up to $100,000. Other states have considered similar provisions amid growing concerns with real estate fraud.

Whether you are a home buyer who stretched the truth on a loan application in order to buy that dream house, or a real estate professional who massaged numbers to increase profit, you may have committed real estate fraud. A skilled criminal attorney may be able to help you avoid a stiff financial penalty or jail time. More importantly, knowledge of state and federal fraud laws may help you avoid needing an attorney at all.

RICO: Racketeering Influenced and Corrupt Organizations Act

By: Ed Martinovich Esq. & Dan Rhoads

The Gentle Don, Alphonse Frank Tieri, ascended through the ranks of the Genovese crime family by being both an effective gangster and an elusive criminal defendant. After one early conviction for robbery, Tieri was acquitted in nine consecutive trials. But in 1980, Tieri became the first person charged under the Racketeering Influenced and Corrupt Organizations (RICO) Act (the Act). He was found guilty in 1981 and sentenced to 10 years in prison, but he died less than three months later while out on bail.

After Tieris death, Anthony Fat Tony Salerno became the Genovese boss; but the RICO statute would land Salerno behind bars as well. Rudy Giuliani, then a U.S. Attorney in New York, charged Salerno, along with the leaders of all five families of the American mob, for RICO violations. The Commission trial, U.S. v. Salerno, 505 U.S. 317 (1992), lasted from 1985 until 1987, when all eight defendants were found guilty. The RICO convictions of Tieri, Salerno, and the rest marked the beginning of the drastic decline in the dominance of the American mafia.

The RICO Law

In 1970, Congress passed the RICO Act in response to a perception that traditional conspiracy law provided inadequate tools for combating sophisticated criminal enterprises. Kadish & Schulhofer, Criminal Law and Its Processes, 7th ed. (2001). Indeed, the ability of mobsters like Tieri to elude punishment frustrated lawmakers and law enforcers alike.

The RICO statute has three substantive provisions. The most prevalent of these is subsection (c), which forbids any person employed by or associated with any [interstate] enterprise . . . to conduct or participate, directly or indirectly, in the conduct of such enterprises affairs through a pattern of racketeering activity or collection of unlawful debt. 18 U.S.C. 1962(c). Subsection (a) basically prohibits laundering money generated through racketeering. Subsection (b) criminalizes the acquisition of an interest in an enterprise through racketeering or unlawful debt-collection. Subsection (d) makes it illegal to conspire to violate any of the first three.

What RICO added to conspiracy law was a substantive offense which ties together . . . diverse parties and crimes. U.S. v. Elliott, 571 F.2d 880, 902 (5th Cir. 1978). Where before RICO, the mafias activities consisted of various conspiracies with no legal connection, the Act made it illegal to participate, directly and indirectly, in the affairs of the enterprise by committing two or more predicate crimes. Id. To be found guilty, a person by his words or actions, must have objectively manifested an agreement to participate. Id., 571 F.2d at 903.

Racketeering

The predicate crimes in the original RICO law reflect the fact that the Acts original target was the mafia. They include (A) any act or threat involving murder, kidnapping, gambling, arson, robbery, bribery, extortion, dealing in obscene matter, or dealing in a controlled substance . . . and (B) bribery, counterfeiting, theft from interstate shipment, embezzlement from pension funds, extortion, gambling crimes, obstruction of justice, and fraud. 18 U.S.C. 1961. Since 1988, the Act has expanded to encompass: peonage and slavery, sexual exploitation of children, fraud relating to illegal immigration, and all manner of copyright infringement.

Pattern

A pattern of activity requires proof that the racketeering predicates are related, and that they . . . pose a threat of continued criminal activity. H.J., Inc. v. Northwestern Bell, 492 U.S. 229, 239 (1989). Criminal conduct is related if it embraces criminal acts that have the same or similar purposes, results, participants, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events. 18 U.S.C. 3575(e). Activity can be continuous in two different ways.

Continuity can be either close-ended or open-ended. Close-ended continuity refers to a period of time, and no case . . . has held the requirement to be satisfied by a pattern of activity lasting less than a year. Religious Technology v. Wollersheim, 971 F.2d 364, 366 (9th Cir. 1992). Open-ended continuity can be shown by either a distinct threat of long-term racketeering activity or by an ongoing entitys regular way of doing business. H.J., 492 U.S. at 242.

RICO Enterprise

A RICO enterprise can be any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity. 18 U.S.C. 1961(4). That last phrase was critical in bringing informal organizations like the mafia under the Acts purview. To be associated in fact, a group must have: (1) a common or shared purpose; (2) some continuity of structure and personnel; and (3) an ascertainable structure distinct from that inherent in a pattern of racketeering. Atlas Pile Driving v. DiCon Financial, 886 F.2d 986, 995 (8th Cir. 1989).

Criminal Penalties for Racketeering

The Act allows for discretion in punishing and gives the state broad powers to seize the property of a convicted defendant. A person convicted under RICO will be either fined or imprisoned not more than 20 years (or for life if the violation is based on a racketeering activity for which the maximum penalty includes life imprisonment), or both. 18 U.S.C. 1963(a). In addition, the person must forfeit essentially anything of value that he obtained through violations of 1962. Id.

Summary

Created to fight the mafia, RICO is now useful in prosecuting members of street gangs, drug-trafficking organizations, and terrorist cells. RICO is also applied to cases of informal groups of individuals acting out a criminal purpose.

Roughly, a violation of RICO consists of (i) intentional participation (ii) in an enterprise (iii) engaging in a pattern (iv) of racketeering activity. Intentional participation is shown through a persons words and actions. An enterprise can be either a legal entity or an informal group. Relatedness and continuity form the pattern. The statute defines racketeering activity by enumerating an ever-expanding list of substantive state and federal offenses.

The Acts criminal penalties include either a fine or imprisonment or both, along with seizure of anything of value that was obtained through racketeering. RICO also includes harsh civil remedies. For example, a person injured by anothers RICO violation shall recover threefold the damages he sustains and the cost of the suit. 18 U.S.C. 1964(c).

The RICO Act is a relatively young statute that is interpreted through still-developing doctrines. Many states have enacted laws based on RICOs blueprint, but RICO itself is tried by federal prosecutors in district court. A defendant facing a RICO charge needs a defense attorney skilled in federal law who is familiar with the statute, its history, and the case law.

Digital Piracy: Why You Might Be a Pirate and Not Even Know It

By Colin McKibbin, Attorney at Law and Dan Rhoads

Music and movie bootleggers on street corners are as common in some cities as panhandlers, ticket scalpers, and jaywalkers. Unlike patrons of street vendors, computer or digital file sharers fail to understand the fact that they are breaking the law. Even less known than the governing laws are the vast networks of online pirates that have made a virtual blood sport of distributing illegally obtained files.

Spurred by the entertainment industry, which blames huge losses on piracy, legislatures are bringing down the ax on all levels of electronic piracy. The danger is that consumers can become unwitting defendants when the public does not understand the piracy laws and the actions that can be considered violations of those laws.

All types of media are susceptible to piracy. In fact, the federal laws against the sharing of computer files arose as a response to a situation at M.I.T., where a student created a bulletin board where users could postand downloadcopyrighted software such as WordPerfect and Excel (Schleimer). The laws passed in response were aimed at protecting copyright owners in the music, motion picture, and videogame industries.

Exclusive Rights and Fair Use

Federal law governs the legal questions surrounding copyright infringement since it is the federal government that issues and regulates copyrights.

The owner of a copyright of an artistic work, such as a motion picture or a song or a musical composition, is usually its creator. The copyright owner has the exclusive rights to reproduce the copyrighted work, to prepare derivative works based upon the copyrighted work, to distribute copies of the work to the public, and to perform or display the work publicly. 17 U.S.C. 106.

Fair use standards protect users of copyrighted material where the purpose is criticism, comment, news reporting, teaching . . ., scholarship, or research. 17 U.S.C. 107. Use is most likely legal when it is not for profit and does not affect the potential or actual market value of the work.

Infringement laws are based upon violations of the copyright owners exclusive rights.

Reproduction and Distribution

The channels through which digital files are spread on the Internet have only recently come to light. At the top of the pyramid of piracy are release groups, which are comprised of the most tech-savvy, secretive, paranoid online pirates out there (Healey), according to the MPAAs John Malcolm. Once an illegal copy reaches a release group, highly skilled technicians [are] responsible for compressing and packaging the media file (Howe).

The compressed files are then moved on to topsites, which are extremely secretive and exclusive. Outside of a pirate elite and the Feds who track them, few know that topsites exist (Howe). Couriers eventually transfer the files from the topsites to dump sites, where more people have access. Only then, after having been duplicated thousands of times, do the files reach the peer-to-peer networks.

Movie Piracy

Although the prevalence of high-tech methods of movie piracy is increasing, the traditional street-corner bootlegger is still in business.

One man sold mangos and hot dogs on the street before he turned to selling DVDs. He expected to sell up to 20,000 copies a week for $1 to $5 each. He sold the copies that he made at a wholesale price to vendors in downtown Los Angeles. When the LAPD raided his home, along with investigators from the Motion Picture Association of America (MPAA), they confiscated nearly 19,000 DVDs, a professional copy machine, 10 DVD burner towers, hundreds of spindles with master copies of films . . . and scores of blank DVDs.

Bootleggers like this risk prosecution under the No Electronic Theft (NET) Act of 1997. The NET Act prohibits infringement by the reproduction or distribution . . . during any 180-day period of . . . copyrighted works which have a total retail value of more than $1,000. 17 U.S.C. 506(a)(1)(B).

As part of the same operation, the police also arrested a woman, who allegedly downloaded the publicity art for the sleeve inserts. Her actions, if true, infringed the copyright of the artist(s) who conceived and/or created the design.

The old-fashioned method of videotaping a film while inside a theater still occurs today. About 90% of pirated movies are taped in theaters with camcorders (Piracy Suspect Claims Tapings Werent Illegal). One man would pose as an employee of the MPAA to get into pre-release screenings. After taping a movie, he then sold the DVDs internationally over the Internet, getting up to $100 apiece.

The Family Entertainment and Copyright (FE&C) Act of 2005 makes it a federal crime to use or attempt to use a video camera in a movie theater. 18 U.S.C. 2319B(a). A person convicted for this offense can be fined and/or imprisoned for up to 3 years on a first offense or 6 years for a subsequent offense.

Due to an emphasis on quality, the online movie pirates disfavor copies that have been recorded by camcorders. In general, they get their booty from one of three sources: industry insiders, projectionists, or agents placed inside disc-stamping plants and retail outlets (Howe).

Illegal Music Sharing

The NET Act makes it clear that file sharing is illegal. It prohibits copyright infringement for purposes of commercial advantage or private financial gain. 17 U.S.C. 506(a)(1)(A). The term financial gain has been expanded to include receipt, or expectation of receipt . . . of other copyrighted works. 17 U.S.C. 101. Anyone still using P2P networks to share copyrighted files violates this law.

Also, if a concertgoer records, transmits, or distributes a taping of a live performance for purposes of commercial advantage or private financial gain, he or she is violating federal law, unless the performer has consented to the recording. 18 U.S.C. 2319A(a). Anyone who traffics in illegal recordings of live performances can be fined and imprisoned for up to 5 years for a first offense or 10 years for a subsequent offense.

Videogame Piracy

In 2004, digital pirates hacked into Valves corporate server and obtained a version of Half-life 2. As the file trickled down through topsites and into dump sites, One file became 30 files became 3,000 files became 300,000 files as Valve stood helplessly by watching its big Christmas blockbuster turn into a lump of coal (Howe).

If caught, the perpetrators of this scheme could be charged under the NET Act. The Act criminalizes the distribution of a work being prepared for commercial [release] by making it available on a computer network accessible to members of the public, if [the actor] knew or should have known that the work was intended for commercial distribution. 17 U.S.C. 506(a)(1)(C). A violator can be fined and imprisoned for as many as 10 years if the violation is not his first. 18 U.S.C. 2319(d).

RICO Risk

The Racketeer Influenced and Corrupt Organizations (RICO) Act has been amended to encompass organized copyright infringement. 18 U.S.C. 1961(1)(B). Clearly, release groups and the people associated with them can be charged with RICO violations. 18 U.S.C. 1962(c). It also appears that groups of file sharers formed on P2P networks come within the scope of RICO.

Costs of Digital Piracy

The MPAA estimates that piracy annually costs the industry $3.5 billion. The Recording Industry Association of America (RIAA) claims that its loss to global piracy is $4.2 billion a year. The revenue loss translates directly into lay-offs, beginning with the most expendable workers.

Conclusion

To protect the industries that thrive on the production of intellectual property, the government has shown an increased seriousness in policing digital piracy. Users of widely available online services find themselves confused by the prospect of prosecution. What seemed an innocuous form of good, clean fun at the turn of the millennium is now being treated as a serious federal crime.

Anyone who shares copyrighted files on a P2P network must understand that that conduct is every bit as illegal as buying a bootleg copy of a DVD or CD from a street vendor. Those who have used P2P networks illegally should be aware that the statute of limitations under the NET Act is 5 years. The best way to avoid prosecution is to conform with the law as soon as possible.

The federal law is complex, and involves many rules and requirements that the novice, or inexperienced, attorney would not know or understand. Even an attorney familiar with a particular practice in a state criminal court may not be familiar with the federal courts procedures. If a prosecutor exercises his discretion and chooses to file charges in the federal court, it is wise to consult an attorney who can advise on the best way to proceed. In some instances, an attorney can get involved in the investigative phase to assist prior to the filing of charges. In some instances, obtaining legal counsel early on in the legal process can assist someone in minimizing the potential consequences of these devastating laws.

Works Cited: Jon Healey, Digital Piracy Raids Net Arrests, Los Angeles Times, 1 July 2005, at C10.

Jeff Howe, The Shadow Internet, Wired Magazine, issue 13.01.

Lorenza Munoz, 3 Arrested in DVD Piracy Raid, Los Angeles Times, 15 June 2005, at C2.

Lorenza Munoz & David Rozensweig, Motion Picture Bootlegger Convicted, Los Angeles Times, 30 June 2005, C1. Piracy Suspect Claims Tapings Werent Illegal, Los Angeles Times, 22 June 2005, C2.

Joseph Schleimer & Kenneth Freundlich, Criminal Prosecution of On-line File-sharing, Journal of Internet Law, August 2001.