Feds: 36 arrested in auto insurance fraud

Thirty-six members of a massive auto-insurance fraud ring made up largely of ethnic Russians bilked insurers out of $113 million since 2007 through a sophisticated scheme to collect phony no-fault claims, federal prosecutors in Manhattan charged Wednesday.

The fraud ring, which included several key players from Long Island and made fraudulent claims totaling more than $275 million, was "unprecedented" in its scope and affected insurance rates for drivers across the state, officials said.

"We believe this is the largest no-fault insurance fraud in history," said U.S. Attorney Preet Bharara at a news conference in Manhattan.

An indictment filed in federal court in Manhattan accused 10 doctors and three lawyers of participating in the scam that set up more than 100 bogus medical clinics around Brooklyn, which billed for nonexistent or unnecessary treatments to collect the $50,000 in no-fault medical coverage available in New York.

The ring allegedly included two chains of primary-care medical clinics, additional clinics that provided follow-up care ranging from acupuncture and MRIs to pain management, shell companies to launder money, "runners" who were paid $2,000 to $3,000 to recruit patients at hospitals and accident scenes, and personal injury lawyers. Doctors were paid monthly retainers to serve as straw owners of clinics.

Officials said the fraudsters did not typically stage accidents, but instead recruited "thousands" of patients from real accidents, who got payments of $500, an array of treatments and medical care that was billed to insurers, and the opportunity to file a lawsuit based on feigned injuries to collect amounts in excess of the no-fault limit.

NYPD Commissioner Ray Kelly said undercover officers who posed as patients were kept "running hither and yon for two months" for medical appointments that would push the bills as close to $50,000 as possible.

"The MRI provider would kick back $250 for every image produced," Kelly said. "The acupuncturist provided 15 minutes of treatment, but billed for 45. In the case of a chiropractor, all our undercover officer had to do was sign in, say hello and leave."

No actual patients were charged, but Bharara said the investigation was continuing.

Of the 36 people charged, the federal indictment says most are of Russian descent. One had the nickname "KGB."

The five Long Islanders among the defendants included Mikhail "Russian Mike" Zemlyansky, 35, of Hewlett, described as one of four key organizers of the scam who controlled a series of clinics and collected kickbacks from others, and attorney Matthew Conroy, 42, of Garden City, described as the "principal legal adviser" for the scheme.

Also charged: Attorney Maria Diglio, 47, of Garden City, who worked in Conroy's law firm; doctor Joseph Vitoulis, 42, of Valley Stream; and Michael Morgan, 33, of Port Washington, who controlled a clinic.

All defendants pleaded not guilty in court appearances late Wednesday. Three accused ringleaders were held, but a judge approved bail packages for Zemlyansky and Conroy over government objections, as well as other defendants.

The defendants face prison terms ranging from 30 to 70 years on racketeering and conspiracy charges.

The head of the FBI's New York office, Janice Fedarcyk, said the 18-month investigation -- which included informants, wiretaps and undercover work -- busted up a scheme that was "obscenely profitable."

"The scheme not only unjustly enriched the defendants and defrauded insurance companies," Fedarcyk said. "Auto insurance fraud is also a crime that indirectly victimizes every driver in New York."