False Injury Claims Cited in Insurance Plot on RTD

Operators of a suspected insurance fraud against the Southern California Rapid Transit District may have made off with hundreds of thousands of dollars, some of it paid out on behalf of victims who apparently do not exist, according to sources familiar with the case.

The scam, which reportedly reached its peak last year, became so efficient that one payment for injuries was issued even before the claim had been received by the RTD.

The Los Angeles County district attorney’s office has confirmed that it is investigating possible kickbacks and other irregularities in connection with personal injury claims. Prosecutors have not given details of the probe, other than to say that some employees of the RTD’s insurance adjuster, Leonard J. Russo Insurance Services Inc., may have illegally referred personal injury claimants to favored doctors and lawyers in exchange for kickbacks.

Leonard Russo, the insurance firm’s president, has said the scheme involved former low-level employees. RTD officials say no RTD employees have been implicated, and they say Russo and his managers helped to ferret out the problem.

Estimate Made

In a recent letter to the RTD Board of Directors, Russo estimated that the loss from possible “false and fraudulent” claims was about $500,000. But in an interview Monday, he said he was “sorry now I made that statement” because he expects the loss to be less.

“We think it is considerably less than that,” said Barbara Akk, the RTD’s risk manager. “Maybe half that amount.”

Akk and Russo stressed that Russo’s firm has insurance to cover fraud and that the RTD’s lost funds will be restored.

The scheme reportedly involved several Russo employees and several attorneys and doctors in connection with some claims submitted for people who police could not find.

“It was a combination,” RTD Police Chief James Burgess said. “People that did exist, whose names were used unknowingly, or, in some instances, knowingly. Some cases of fictitious names and very definitely fictitious addresses.”

Sources familiar with the case said that about a dozen attorneys, who filed the cases, and as many doctors, who provided medical bills for services never rendered, apparently profited from the scheme with the help of insiders at Russo’s Los Angeles airport area office.

Investigators said that checks made out to non-existent people were cashed by lawyers having power of attorney for the supposed victims.

Jeff Sandford, a former senior claims administrator for Russo, said he was assigned to investigate the matter and quickly saw a pattern of suspicious payments. In the first two hours of his investigation, he said, he found “about $90,000 of problem” claims.

Sandford said suspicions about the false claims were first aroused by an anonymous letter forwarded to the Russo firm by RTD officials.

The alleged scheme appeared to be confined to a group of about five employees, said Sandford, who now works for another insurance administration firm. The employees apparently helped speed the processing of paper work.

Most of the payments were for less than $5,000--the amount Russo’s firm is authorized to settle without RTD approval. At one point, 15 to 20 suspicious checks a day were being issued, Sandford said.

Premature Payoff

One claim was paid off before the forms had even been received by the RTD claims office.

Sandford, Russo and RTD officials said that filing phony injury claims against the RTD is nothing new.

“RTD is a target,” Russo said.

“It’s really not an uncommon scam for transit operations,” Burgess said.

RTD officials and Russo claim that procedures, including increased identification requirements from claimants and increased RTD supervision of settlements, have been tightened to reduce chances that the problem will recur in the claims contract, which totals $1.9 million this year.

“As far as I’m concerned, none of those should have been paid,” Russo said. “People were just corrupting the system.”

In a separate investigation, the district attorney’s office is looking at possible irregularities in the awarding of an RTD contract to Russo to administer the district’s workers compensation claims. The probe is focusing on whether illegal payments were made to RTD board members. Russo and board members have denied any wrongdoing.