After searching 10 years for the missing loot of a Medi-Cal fraud ring, state investigators have recovered $9.4 million from hidden bank accounts in the European principality of Liechtenstein.
The illegal haul is being returned to California just as the leader of the ring, Marcus Fontaine, is finishing a 10-year federal prison term for mail fraud and money laundering convictions.
Authorities suspect Fontaine planned to retrieve the stash after his release. But those plans were foiled when investigators used the name of a pet dog to break the password code on Fontaine's personal organizer and establish a Liechtenstein connection.
"Unfortunately for him, we just didn't give up," said Deputy Atty. Gen. David Haxton. "It took 10 years, but we've gotten all that he had hidden in Liechtenstein."
The recovery of the money is a sweet victory for the attorney general's office, which has been struggling to rebuild its image after the FBI uncovered massive fraud in Medi-Cal, a $21-billion program that provides health care for California's poor people.
The FBI investigations were followed by disclosures that for nearly a decade the state had done little to combat fraud in Medi-Cal, despite warnings from auditors that it had become rampant.
The Liechtenstein recovery comes as the latest reports show a dramatic turnaround by the attorney general's Bureau of Medi-Cal Fraud and Elder Abuse. In the past year, the number of fraud convictions has jumped by 239% and the number of pending investigations by 88%.
"I've pushed for more vigorous prosecution of Medi-Cal fraud because these scam artists are stealing millions from taxpayers and hurting poor and sick Californians," said state Atty. Gen. Bill Lockyer, who took office in January 1999..
The FBI, which has filed 120 fraud cases, estimates that fraud has siphoned at least $1 billion out of the Medi-Cal system in the past several years.
"I think that criminals out there have come to the belief that Medi-Cal is a golden cash cow and one that is easily ripped off," said Collin Wong, the attorney general's fraud bureau director. "I think the problem of Medi-Cal fraud is very pervasive and its magnitude can't be overstated."
This year, Lockyer is seeking a $4-million increase in his budget to beef up the bureau's enforcement staff. Gov. Gray Davis has agreed to the increase but made it contingent on the passage of AB 1098, a measure by Assemblywoman Gloria Romero (D-Los Angeles) that provides more enforcement tools and increased penalties for fraud convictions.
The fraud operations that have been uncovered by Lockyer and the FBI are imitations of the scam that Fontaine masterminded 10 years ago.
Fontaine, 47, a Culver City businessman, went to prison after he admitted stealing $13 million from Medi-Cal by setting up fake medical supply companies during a three-year period in the late 1980s. He told investigators that he presented phony billings to Medi-Cal for equipment and supplies that he claimed the companies provided to poor patients.
By the time he was caught, Fontaine had spent several million dollars and deposited the rest in foreign bank accounts, Haxton said.
Authorities eventually traced the money to Liechtenstein, a 62-square-mile, German-speaking principality wedged between Austria and Switzerland. But they hit a dead end.
"He had moved the money to various countries, then gone to a trust asset firm in Liechtenstein and told them he was having trouble with the IRS and needed to hide money," Haxton said. "In Liechtenstein, there's nothing wrong with hiding money from tax authorities."
Although Haxton knew the money was in Liechtenstein, he had no idea in what bank or under what name. A lucky break and an FBI agent's love of animals provided the key.
When Fontaine was arrested, agents had seized all his cash and possessions, including a pocket computer. But when they tried to retrieve data from the computer, they found that they couldn't get it without a password.
They tried without success to break the code. Then on a hunch, an FBI agent who was a dog lover tried the names of all the Fontaine family pets. He hit pay dirt when he punched in the name of Fontaine's sister's dog.
In the computer was a reference to the Kedge Foundation. Through an American bank that was linked to banks in Liechtenstein, agents got access to records showing the Kedge Foundation had one beneficiary: Marcus Fontaine.
"When we found the money, it was all in the name of the foundation," Haxton said. "In Liechtenstein, you can create a foundation where the beneficiaries are known only to the trustees of the foundation. The Liechtenstein government can't even extract that information."
After California authorities discovered that the Kedge Foundation and Fontaine were oneand the same, they ran into another roadblock. Unless there was a connection to illegal drug deals, the Liechtenstein government would not seize or freeze funds.
The only way for California authorities to get the money was to file a lawsuit in civil court. With the help of the U.S. Department of Justice, they hired an attorney in Liechtenstein and went to court.
Then Haxton had another surprise.
Fontaine, in hopes of reducing his sentence, agreed to write his trustees a letter directing that they turn his assets over to California authorities. But the trustees ignored the letter, taking the position that it wasn't valid because it had been written under duress.
They decided to fight the civil lawsuit.
For several years, the case languished as both sides filed motions and appeals. Then in June, it finally went to trial. Haxton sat in an armless chair in the middle of the courtroom while a judge hurled questions at him in German. He answered through an interpreter.
Then he got the word: The trustees finally were giving up and the money would be returned.
"I always thought we had a good shot at getting it," Haxton said last week. "There were offers made by Fontaine's lawyers along the way that they would keep a portion and give us the rest. There was talk in Washington that maybe we ought to take what they were offering.
"My position was no, we should just continue with the litigation and eventually we'll get it."