4th Lawyer Pleads Guilty in Complex Insurance Fraud

A Woodland Hills attorney who aspired to become a judge instead stood before one Friday to admit criminal involvement in an elaborate insurance fraud by a group of Los Angeles-area lawyers.

Bruce Ficht, 39, pleaded guilty to a single count of mail fraud, becoming the fourth attorney convicted in a case experts say is emerging as one of the largest criminal prosecutions of attorneys in U.S. history.

The four lawyers and two other people convicted thus far all lived or worked in the San Fernando Valley. Prosecutors have said 10 or 15 more attorneys could be indicted in the case, which has targeted a ring of lawyers that prosecutors called the “Alliance.”

No sentencing date was set for Ficht on the mail fraud count, which carries a maximum penalty of five years imprisonment and a $250,000 fine. Although Ficht’s plea bargain was sealed by U.S. District Judge Judith Keep, the agreement is believed to require Ficht to surrender his license to practice law.

Ficht declined comment after his brief court appearance, and Assistant U.S. Atty. George D. Hardy would not discuss specifics of Ficht’s plea. But Hardy said that “with all of these cases we’ve required that the attorneys surrender their licenses.”

Federal authorities and some insurance industry lawyers say Alliance members billed insurance companies as much as $200 million over a period of several years, although they have not estimated how much of the billing was frivolous or fraudulent.

In an interview with The Times more than a year ago, Ficht denied any wrongdoing and bristled at allegations of misconduct. “Between you and I, I have hopes one day of running for judge,” he said.

But on Friday, barely speaking above a whisper in response to questions from Keep, Ficht admitted conspiring with other lawyers to manipulate litigation and bilk insurance companies. “In furtherance of that scheme, I assisted in billing insurance carriers and assisted other attorneys in billing insurance carriers,” he said.

When entering their guilty pleas, Ficht and the others previously convicted described a sort of legal franchise operation, in which senior members of the ring set up new members with their own law offices, creating additional billing centers for the group. The new members were loaned start-up funds and sent insured defendants, and in return agreed to pay the group a percentage of their insurance company billings.

Ficht told Keep that he struck such a bargain with Marc I. Kent, a former Studio City lawyer who has become a key government witness since pleading guilty last October. Kent helped Ficht set up his law office in November, 1986, and sent him clients in three complex litigations in which others in the group were involved, known as the Amgo, Syndico and Mint Financial cases.

Ficht said he took advice and direction from Kent, even though his Syndico client and Kent’s had opposing interests.

Richard A. Banks, who pleaded guilty last month, and Alan M. Hersh, who pleaded guilty in December, also said they were recruited by Kent.

Kent, in turn, said Lynn B. Stites, whom authorities called the mastermind of the scheme, recruited him about 1984. Stites, who has not been charged, has refused requests for interviews.

The lawyers appeared together in a number of complex civil cases in Los Angeles, Orange and San Diego counties that usually involved claims of investment fraud. The cases were a special type in which insurance companies had to pay legal bills but lost the right to pick their policyholders’ lawyers or direct defense strategy.

Under California insurance law, this occurs when policyholders are sued for damages covered by their insurance, as well as for uninsured damages. The insurance company typically agrees to defend its client against insured claims, such as property damage, but reserves its right not to pay damages if fraud or other claims not covered by insurance are proved.

This creates a potential conflict between insurers and policyholders that under state law allows the policyholder to decide who will defend him at insurance company expense. In legalese, this independent lawyer is called a “Cumis” counsel after a key court decision that affirmed the doctrine.

Alliance lawyers became Cumis counsel in various cases and secured other insured defendants for members of their group. Sometimes they paid their clients kickbacks for the right to defend them at insurance company expense, according to admissions by Kent.

Once in a case together, the lawyers allegedly used exhaustive discovery to run up defense bills, and filed cross-claims, or secondary lawsuits, against each other’s clients, increasing each attorney’s workload and fees.

In several cases, the group was able to insert its own members as plaintiffs’ attorneys to file lawsuits that others in the group would then defend, two of those convicted have said.

By having their own members represent plaintiffs and decide the precise wording of the lawsuits, the lawyers could assure that some claims in the suits were covered by insurance and some were not. That way, insurance companies would have to pay defense costs but would be certain to invoke their rights not to pay damages for the uninsured claims.

As a result, they would surrender their right to pick lawyers for their policyholders.

Although it did not figure in Ficht’s plea Friday, Wayne Watson, a businessman who was sued in the Amgo case in San Diego and secretly worked with federal investigators, said Ficht once offered to pay him $300 a month to drop his Amgo attorney and retain Ficht to conduct his insurance-paid defense. Other defendants in the case were receiving payments from their attorneys, Watson said.

“It just slapped me upside the face as to being very blatant . . . what they were doing here,” Watson said in an interview.

Ficht, who denied Watson’s account of the conversation in a 1988 interview, ended up representing another Amgo defendant.