3 Arrested in Health Insurance Scam

Three people were arrested Monday on suspicion of participating in an insurance scam through Employers Mutual LLC, a bogus health insurance provider that left tens of millions of dollars in medical claims unpaid, federal officials said Monday.

James Graf and Kari Hanson, both 43 and of Canyon Lake, and William Kokott, 60, of Burbank were indicted on 37 counts by a federal grand jury late last month. The three are accused of conspiracy, mail fraud, misappropriation and committing unlawful monetary transfers.

Kokott and Hanson are also charged with obstruction of justice, and Hanson is additionally charged with obstructing a federal grand jury investigation, the U.S. attorney’s office in Los Angeles said Monday.

Employers Mutual provided healthcare coverage for more than 20,000 people nationwide, but allegedly left more than $30 million in unpaid claims when it was shut down by the federal government and several states in 2001.

Federal prosecutors said the company operated outside of federal and state scrutiny by claiming to be covered by a 1974 act that allows employers, credit unions and others to offer healthcare plans without the approval of the U.S. Department of Labor.

Graf, Hanson and Kokott are accused of collecting more than $14 million in insurance premiums from fall 2000 to December 2001, and misappropriating more than $2.3 million of that money.

Once the Labor Department began investigating the company, Graf told employees to conceal information, Kokott lied to investigators, and Hanson produced fake documents in response to a federal subpoena, according to a statement released by spokesman Thom Mrozek of the U.S. attorney’s office.

If convicted, Hanson, the company’s director of operations, faces up to 250 years in federal prison and a $7-million fine. Owner Kokott could get 220 years in federal prison and a $6.25-million fine.

Graf, who operated the company, could face up to 160 years in federal prison and a $4.75-million fine.

Employers Mutual LLC has no affiliation with Employers Mutual Insurance Co. of Des Moines.