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August 2, 2017

Criminal Prosecution of Insurance Producers

By Kate L. Villanueva and Jessica E. Loesing

A criminal proceeding in the Northern District of California serves as a reminder of the importance of vigilant underwriting to protect against unscrupulous producers seeking fraudulent commission payouts. In U.S. v. Halali, et al., Case No. 14-0627 (N.D. Cal.), five producers (Behnam Halali, Ernesto Magat, Kraig Jilge, Karen Gagarin, and Alomkone Soundara aka Alex Soudara) engaged in a fraudulent scheme that generated more than $2.5 million in commissions on policies that were canceled within months of issuance.

To effectuate the scheme, the defendant-producers solicited individuals to take medical exams and provide personal information as part of a fictitious health study. The defendant-producers thereafter applied for life insurance in those individuals’ names, typically without the individuals’ knowledge. The defendant-producers also created fraudulent driver’s licenses for the purpose of taking the medical exams themselves, purporting to be the individuals in the applications. The defendant-producers even opened bank accounts and created telephone numbers using Google Voice to answer calls from the insurers seeking to corroborate information in the applications. In all variations of the scheme, the defendant-producers collected commissions and canceled the policies several months later.

In late 2016 and early 2017, two of the defendants entered plea deals. In March 2017, the remaining three defendants were found guilty of 1) conspiracy to commit wire fraud, 2) wire fraud, and 3) aggravated identity theft. The court denied the defendants’ post-trial motions on July 28, 2017, and will impose sentences in September 2017.

Insurers should continue to be vigilant to combat such fraudulent business. As part of anti-fraud initiatives or general training, it would be prudent to arm underwriters with information regarding producer fraud, including examples of past schemes perpetrated by unscrupulous producers. It may also be prudent to work with the distribution chain to ensure producers’ ongoing compliance with company guidelines.

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