U.S. Seizes Files of Huntington Beach Businessman : Insurance: An investigation centers on up to $9 million in suspected mail and bankruptcy fraud involving six companies.

Federal agents have seized records of six companies run by a Huntington Beach businessman suspected of defrauding small businesses of up to $9 million and other insurance companies of additional amounts, a court affidavit obtained Tuesday shows.

The records of the companies owned by Henry W. Hay were taken in a June 26 search of his Beach Boulevard offices by state fraud investigators and federal postal and labor officials as part of a wide-ranging investigation into his business activities.

The 37-page affidavit, filed in federal court in Los Angeles by Postal Inspector James S. Hamilton, says the investigation is centering on possible mail and bankruptcy fraud by Hay. Hamilton would not comment on the inquiry.

Hay has not been charged with wrongdoing. He and his attorney, George L. Rogers, could not be reached Tuesday for comment.

“Hay sold to various employers, for the benefit of their employees, medical insurance programs that falsely purported to be partially and (later) fully underwritten by legitimate insurance companies,” Hamilton said in the affidavit.

Hay is also suspected of defrauding insurance companies by mailing false reimbursement claims, the affidavit said.

It further states that Hay is suspected of “fraudulently concealing assets and filing false proof of claims in order to eliminate any liability concerning the payment of any outstanding claims” in regard to the bankruptcy of one of his companies.

According to the affidavit, Hay’s California Development Maintenance Assn. solicited small businesses to buy fully insured group health coverage from him.

However, the affidavit says that he did not disclose that the health benefit programs that he sold were not fully insured--which assures coverage by other insurers in the event of a shortfall--but rather were self-funded by two other Hay controlled companies, Building Employers Trust (BET) and Professional Employers Trust (PET), and that this had the effect of leaving small employers with inadequate insurance coverage.

BET was established in 1982 to pay for life, health and dental benefits through contracts with providers; PET was started in 1983 to provide similar insurance coverages.

Other companies that Hay operated were Health Data Processing Insurance Administrators Inc.; HDH Insurance Marketing & Sales, and Hay & Gillespie Insurance Inc.

The affidavit alleges that Hays misrepresented the coverage provided by BET since it was established. Hay has provided coverage for about 1,900 small-business employers, which has about 1,700 participants, since 1985, the document said.

“Both the insurance agents and the employers would not have done business with Henry Hay and his entities had they known the programs were self funded,” the affidavit says.

As a result, $6 million to $9 million in participant health claims remain unpaid since November of last year, Hamilton stated in his affidavit.

It also says that Hay defrauded several insurers by mailing to insurance companies photocopies of purportedly issued but unpaid checks.

The insurers insured the benefit programs for losses exceeding $50,000, the affidavit says, then the companies mailed Hay the money based on the purportedly issued checks.

Hay and the insurance companies agreed that Hay and his companies were to pay all claims before the insurers would reimburse him, but Hay fraudulently received insurance reimbursement on some claimants whose expenses exceeded $50,000, the affidavit says. After receiving these reimbursements, the affidavit says, Hay and his companies did not pay all the claimants’ service providers: that is, doctors and hospitals.

When the Department of Labor started investigating complaints about Hay and his companies last summer, officials requested financial records from BET. But Hay, through Rogers, said he could not provide the records because BET had filed for bankruptcy and had named the claimants and service providers as creditors.

During the bankruptcy proceeding, Hay failed to provide the court with all of the company’s books and records and to disclose all of BET’s assets and liabilities, the affidavit alleges.

Such failures constitute bankruptcy fraud, the document says.