Source: http://agencychecklists.com/2016/06/07/license-lost-after-racketeering-conviction-for-university-premium-fraud-14255/
Timestamp: 2017-10-23 00:25:34
Document Index: 458882103

Matched Legal Cases: ['§ 166', '§ 7', '§ 194', '§ 162', '§ 162', '§ 162', '§ 162', '§ 162', '§ 162', '§ 162', '§ 162', '§ 162', '§ 162', 'in fine', '§ 166', '§ 162', '§ 7']

License Lost After Racketeering Conviction For University Premium Fraud | Agency Checklists
License Lost After Racketeering Conviction For University Premium Fraud
June 7, 2016 by Owen Gallagher Leave a Comment
In 2014, John Paul Gutschlag of Frisco, Texas pleaded guilty to fraudulently overcharging the Virginia Polytechnic Institute (“Virginia Tech”) a $1 million for health insurance premiums. Virginia Tech alleged that the fraud involved substantially more money on the order of $20 million. This case seemed to echo another later case also involving an insurance agent defrauding a university. See Agency Checklists’ June 9, 2015 article, “Former Owner of Academic Risk Agency, Bonney Hebert, Pleads Guilty To Defrauding Insurer of $10 Million in Premiums.”
On May 27, Stephen M. Summers, a Division of Insurance hearing officer entered an order under General Laws Chapter 175, § 166B against Mr. Gutschlag revoking and ordering the return of any and all producer licenses, to cease transacting any insurance business in Massachusetts, and to dispose of any interests in Massachusetts as a proprietor, partner, stockholder, officer, or employee of any licensed insurance producer. The Division also fined Mr. Gutschlag $6,500 pursuant to General Laws Chapter 176D § 7, and G.L. c. 175, § 194, on April 27, 2016.
Revocation failing to report administrative actions in other states based on federal conviction for insurance fraud
The Division based its October 20, 2015 Order to Show Cause why Mr. Gutschlag’s should not be revoked, and additional orders entered, on twenty-one violations of Massachusetts insurance laws. These violations included:
Charges that Mr. Gutschlag violated Chapter 175, § 162V(a) nine times; when he failed to report administrative actions in Texas (First Claim), Virginia (Second Claim), Florida (Third Claim), Colorado (Fourth Claim), Idaho (Fifth Claim), Oklahoma (Sixth Claim), Vermont (Seventh Claim), North Dakota (Eighth Claim), and South Dakota (Ninth Claim).
Charges that Mr. Gutschlag “violated” the following three subsections of Chapter 175, § 162R(a) (“§ 162R(a)”) when he engaged in a plan to defraud Virginia Polytechnic Institute and State University and its students: § 162R(a)(4) (Tenth Claim), § 162R(a)(5) (Eleventh Claim), and § 162R(a)(8) (Fourteenth Claim).’
Charges that Mr. Gutschlag “violated” § 162R(a)(6) (Twelfth Claim) and § 162R(a)(7) (Thirteenth Claim) when he admitted that he had committed an insurance unfair trade practice or fraud, and pleaded guilty and was convicted of conspiracy to violate the Racketeer Influenced and Corrupt Organizations Act.
Charges that Mr. Gutschlag “violated” § 162R(a)(9) of Chapter 175 on six occasions; when his nonresident producer licenses issued by Florida (Fifteenth Claim), Idaho (Sixteenth Claim), Oklahoma (Seventeenth Claim), Vermont (Eighteenth Claim), North Dakota (Nineteenth Claim), and South Dakota (Twentieth Claim) were surrendered or revoked.
A charge that Mr. Gutschlag also violated § 162V(a) when he failed to report a felony conviction to the Division (Twenty-first Claim).
Mr. Gutschlag filed a sort of answer to the Division’s Order to Show Cause but did not appear at the scheduled hearing. The hearing officer noted that the Order to Show Cause had been served on Mr. Gutschlag at his addresses in the Division’s licensing records and also had been served “at an address in Grand Prairie, Texas, that was not listed in the Division’s licensing records.”
Risk manager discover student health program manager overcharging for insurance
The address “not in the Division’s licensing records” was to Mr. Gutschlag as “Prisoner Number 17308-084” in a Federal Bureau of Prisons facility in Grand Prairie, Texas.
Mr. Gutschlag had been the former owner and the CEO of GM-Southwest Inc.
GM-Southwest marketed student accident and health insurance programs through schools and universities. It also acted as the third-party administrator in collecting the insurance premiums for the coverages from students and universities, paying claims and providing reports related to the premium collection and claims payment both to the university and the insurance carriers. GM-Southwest collected commissions from the premiums before remitting the net to the insurance carriers.
From August 2003 through the end of the 2010-2011 school year, GM-Southwest, provided student health insurance for Virginia Tech’s undergraduate and graduate students.
Beginning in 2005, Mr. Gutschlag, and others at GM-Southwest cooked up a scheme to defraud the colleges and universities they provided coverage through by providing false claim reports designed to increase the income of GM-Southwest and Mr. Gutschlag. The reports had an undisclosed “claims modifier” that overstated the claims paid and loss ratios, causing students and Virginia Tech to pay higher premium costs.
After a new risk manager discovered the discrepancies and reported the fraud to authorities, a federal grand jury indicted Mr. Gutschlag on a fifty-seven count indictment that included charges of mail fraud and racketeering.
Eighteen months in prison, $1.2 million in restitution, $1.2 forfeiture for Virginia Tech fraud and $20 million civil recovery by Virginia Tech
Mr. Gutschlag and GM-Southwest only admitted to overstating the amount of claims paid on behalf of Virginia Tech by over $1 million from 2003-2004 through the 2009-2010 academic years.
In 2014, Mr. Gutschlag, who was 73, pleaded guilty to one count of conspiracy to violate the Racketeering Act and two counts of money laundering by engaging in monetary transactions involving property derived from wire and mail fraud and was sentenced 18 months in federal custody. Mr. Gutschlag was also ordered to pay $1.2 million in restitution and to forfeit an equal amount to the United States.
Commonwealth of Virginia and Virginia Tech recovered almost $20 million from insurers Mr. Gutschlag represented
Subsequent civil suits by the State of Virginia and Virginia Tech claimed losses closer to $20 million. The public record evidences that they recovered $3.25 million from Pan American Life Insurance Company, $2.5 million from Madison Life, and $500 thousand from Clarendon Insurance. The recovery, if any, against GM-Southwest’s main carrier Nationwide, was not available from the public record.
However, the law firm hired by the Commonwealth of Virginia to represent it and Virginia Tech in suing five insurance companies and GM-Southwest in a Fraud Against Taxpayers Act case involving fraud in the procurement and administration of student health insurance reports on its website that “before trial the insurance companies agreed to pay approximately$20 million, which was the largest Virginia Fraud Against Taxpayers Act settlement in the history of Virginia.”
Licenses in Massachusetts revoked and $6,500 in fines imposed
In Mr. Gutschlag’s case, his federal felony convictions and the unreported license revocations based upon those convictions, made the orders entered by Hearing Officer Summers almost a foregone conclusion.
Mr. Gutschlag did not appear at the hearing to contest any of the charges in the Order to Show Cause. Hearing Officer reviewed the incontrovertible evidence of the felony convictions and the evidence of the administrative actions against Mr. Gutschlag’s licenses in Texas, Virginia, Florida, Colorado, Idaho, Oklahoma, Vermont, North Dakota, and South Dakota.
The Hearing Officer ordered:
That John Paul Gutschlag shall cease and desist from the conduct complained of in the Order to Show Cause filed on October 20, 2015;
That any and all insurance licenses issued to John Paul Gutschlag by the Massachusetts Division of Insurance are hereby revoked;
That John Paul Gutschlag shall return to the Massachusetts Division of Insurance any licenses in his possession, custody or control;
That John Paul Gutschlag is, from the date of this order and decision, prohibited from directly or indirectly transacting any insurance business or acquiring, in any capacity whatsoever, any insurance business in the Commonwealth of Massachusetts;
That John Paul Gutschlag shall comply with the provisions of Chapter 175, § 166B, and dispose of any and all interests in Massachusetts as proprietor, partner, stockholder, officer or employee of any licensed insurance producer; and
That John Paul Gutschlag shall pay to the Massachusetts Division of Insurance within 30 days of the entry of this Order and Decision a civil penalty of Six Thousand Five Hundred Dollars ($6,500.00) pursuant to Chapter 175, §§ 162R(a), 162V(a), and 194; and Chapter 176D, § 7. (Emphasis in original).
Federal restitution order of $1.2 million paid in full within two weeks
Ordinarily, one suspects that the fines imposed in these cases against out-of-state licensees have little or no chance of collection. However, the records in Mr. Gutschlag’s federal criminal case convictions show that he paid the $1.2 million ordered by the United States District Court in Virginia on May 21, 2014, was paid by wire transfer on June 4, 2014.
In this case, the Commonwealth just may have a chance of collecting its fines.
Filed Under: criminal charges, DOI News, Fraud News, License hearings Tagged With: DOI news, ma insurance news, Mass. Insurance News