Fraud Suspect Living a Life of Ease in Spain

Somewhere in Spain, perhaps at his villa on the Costa del Sol or at his luxury apartment in Madrid, Faustino Pascual lives comfortably on $6.5 million that authorities say he stole from California’s Medi-Cal system.

Actually, federal court records show, Pascual is accused of defrauding the state poverty medical program of more than $20 million between 1988 and 1990. The $6.5 million is what agents say they could prove he transferred to overseas banks before fleeing the United States the day before investigators came to arrest him at his Diamond Bar condominium.

FBI agents serving at the U.S. Embassy in Madrid periodically check in on Pascual, whose full name is Faustino Pascual Crespo. The most recent information on him came from an informant less than a year ago, federal officials said.

The international police agency Interpol issued a “red notice” that Pascual is still wanted in California. But the 58-year-old Spaniard is protected under Spanish extradition laws and cannot be arrested unless he attempts to leave the country.

The Pascual case predates by nine years the current Medi-Cal scandal that has so far resulted in 75 arrests stemming from hundreds of millions of dollars in false billings for medical supplies. But the modus operandi is nearly identical. Pascual allegedly set up phony medical supply outlets in several Orange County locations and, using falsified prescriptions, billed the state for adult diapers and other items he never delivered.

How did the state, burned less than a decade ago, allow the same thing to happen again on an even larger scale? Why, given the huge sums of taxpayer money involved, wasn’t the public more outraged and political leaders more motivated to do something about it earlier?

When the ongoing investigation into more than 200 cases is complete, FBI officials estimate, the total fraud committed over a period of about five years will exceed $1 billion. That would be one of the largest frauds ever committed against government, and more than the money taken in all the bank robberies in the United States in the past decade.

“People really get terrorized when an unarmed bank robber takes $500,” said Loyola law professor Laurie Levenson, a former federal prosecutor and an expert on white-collar crime. “But it’s hard for people to identify the government as victim. It is such a nebulous entity, and people can’t make the connection between taxpayer dollars and what is being ripped off.”

And elected officials seldom like it when a scandal erupts on their watch.

“For politicians,” said Levenson, who served in the U.S. attorney’s major fraud section in Los Angeles, “a crime like this shows a failure of the system. Then they can get accused of not watching the henhouse.”

The current prosecutions have come immediately after a change in administrations in Sacramento. Democratic Gov. Gray Davis, who as state controller uncovered the 1988-90 Medi-Cal scandal, has unleashed a special task force and is working closely with the FBI to probe the current round, which occurred under the administration of Republican Gov. Pete Wilson.

“It’s a lot easier for a new governor to get in there and do good, because this sort of thing happened on another governor’s watch,” said John Dwyer, a former criminal defense lawyer who teaches at UC Berkeley law school. “But no politician wants to see a billion dollars wasted on fraud.”

The amounts of money involved in this type of white-collar crime can be staggering. According to FBI statistics, the loot taken in the 89,890 robberies of banks and other financial institutions from 1988 to 1998 totaled $766 million.

But compared to an O.J. Simpson trial or a sensational heist like the 1950 Boston Brink’s robbery or the 1978 Lufthansa cargo theft at Kennedy International Airport, which have been featured in books and movies, a large crime against a public institution generates relatively little public excitement. The Brink’s robbers stole $2.7 million in cash, checks, bonds and securities. The JFK airport heist, featured in the film “Goodfellas,” totaled $5.8 million in cash and jewelry.

The public and government react more quickly, said UC Berkeley law professor Franklin E. Zimring, when it is a violent crime that has a “palpably harmed victim.”

Zimring said he noticed the same phenomenon during the 1980s savings and loan scandal, marked by massive fraud and losses totaling $200 billion but that resulted in relatively few prosecutions--Charles Keating excluded. Depositors in the bankrupt S&Ls;, which required a massive federal bailout, didn’t feel victimized because their funds were insured.

That doesn’t mean that fraud on the scale of the Medi-Cal scandal does not have victims.

“At some point,” said Dwyer, “that $1 billion went some place. It went to the criminals. It means that the state of California didn’t have that money to spend on elementary schools. It means fewer roads, fewer schools, fewer police and a worse environment.”

Faustino Pascual’s share of the earlier Medi-Cal rip-off contributed to a safe landing in his native Spain.

A 1994 federal indictment of Pascual on charges of mail fraud and money laundering describes how Pascual, who split his time between his villa in Marbella, Spain, and his home in suburban Los Angeles, allegedly cashed in on the Medi-Cal system. Between 1985 and 1989, the indictment states, Pascual operated 15 companies that billed Medicare, the federal health program for the elderly, for a relatively modest $500,000.

In 1988, Pascual enrolled four of those companies as providers for Medi-Cal, California’s version of the state-federal health care program for the poor. Overnight, Pascual’s companies began billing Medi-Cal for millions of dollars worth of adult diapers, underpants, bed pads and skin products.

Between 1988 and 1990, Pascual billed the state Department of Health Services for $22.4 million in such supplies--almost all of which was later alleged to be fraudulent. The process proved so lucrative that a former assistant in one of Pascual’s companies split off on her own, enlisting her brother to help, and bilked the state of another $13 million in phony Medi-Cal supplies. They were eventually convicted of the scam.

Some in state government, including then-controller Davis, noticed the sudden spike in billings from a relatively new Medi-Cal provider, but the Department of Health Services did nothing to stop it until it was too late. Federal court records show that Pascual began transferring huge sums of money to Spanish bank accounts in June 1989. The last transfer, for $1 million to Banco Exterior de Espana (Madrid) in January 1990, came only a month before he fled the United States.

A deputy attorney general who worked on the Pascual case remembers calling attorneys for the Department of Health Services and asking that Pascual’s Medi-Cal provider authorization be withdrawn pending the conclusion of the investigation. “I was told, ‘Not unless we had a conviction or a court order,’ ” the lawyer recalled.

When the state was ready to arrest Pascual, as part of a wider crackdown in 1990 that the press dubbed “Diapergate,” state officials inadvertently or ineptly warned him that they were coming.

In announcing that investigators had conducted raids on Medi-Cal supply houses in Northern California, the office of then-Atty. Gen. John Van de Kamp said more raids were planned later in the week in Southern California.

That was all Pascual needed. The next day he was headed for Spain.