Opinion ID: 72598
Heading Depth: 4
Heading Rank: 1

Heading: The Conspiracy Itself (Count 1)

Text: The indictment charged that Garrison, Kelly, Suba, Healthmaster, Master Health and Managed Risk conspired together to defraud the United States through its Medicare program by fraudulently obtaining Medicare reimbursement for many different categories of items. Garrison was charged with Healthmaster's submission of cost reports that fraudulently sought reimbursement for her political contributions; for the wages of Healthmaster ghost employees (actually working at non-Medicare reimbursed companies); and for many of her own personal expenses. Garrison pleaded guilty to conspiracy and nine counts of making false statements. See note 8 supra. Count 1 of the indictment also charged Appellants with non-disclosure of related companies; with fraudulently obtaining workers compensation insurance premiums payable to Managed Risk from Preferred Care companies and fraudulently distributed to Managed Risk shareholders; with embezzling money from an employee benefit plan; and with concealing the source of the fraudulently obtained funds. 2. The Preferred Care (PCC) Allegations (Counts 36-109) The Preferred Care allegations are touted to be the centerpiece of the Government's case. The allegations originate with Healthmaster's application for state (Georgia) approval of its self-insured worker's compensation program. Initially Healthmaster's application was rejected on the grounds of insufficient funds necessary to satisfy the State of Georgia's required two-to-one asset-to-liability ratio. Thereafter, to supplement its assets, Healthmaster listed as its workers' compensation program affiliate, the Preferred Care Companies (Preferred Care or PCC), a Garrison-owned holding company, and reapplied for self-insurance. See note 10 supra. Now armed with adequate assets to ensure payment of claims, the State of Georgia granted Healthmaster's re-application to self-insure, upon the condition that it post a $500,000 bond. Healthmaster posted the bond. Kelly was the principal signatory on the second application. The re-application pledged to pay workers' compensation claims out from an irrevocable trust funded upon an actuarial basis (the Augusta WC account described below). The Government alleges that Kelly, Suba and Managed Risk abused Healthmaster's affiliation with Preferred Care by illegally converting (for their own use) premiums intended for the benefit of Preferred Care employees. By so doing, Medicare was also defrauded. The scheme was accomplished, the Government contends, as follows: Kelly established a trust account at the Trust Company Bank in Augusta (the Augusta WC account).6 Healthmaster administered its self-insured workers' compensation program through the Augusta WC account. From May 1990, through March 1993, Preferred Care was billed for and paid $1,420,237 in workers' compensation premiums. However, the Preferred Care checks were not mailed to or deposited in the Augusta WC account as pledged. Instead, the Preferred Care checks were mailed to Managed Risk's Atlanta post office box. Elizabeth Siegler, a Preferred Care employee, testified that she signed and mailed twelve premium 6 The Augusta WC account funded a separate small claims account to pay employees' claims up to $25,000. Kelly and Suba established another account at the Midland Bank Trust Corporation in the Cayman Islands to provide coverage for claims greater than $25,000, up to $250,000. Commercial insurance coverage was obtained for Healthmaster employee claims above $250,000. checks to the Managed Risk Atlanta post office box (Counts 67-78); her predecessor, Debra Chance, testified that she signed the check used to buy the bond (Count 36) and thirty other premiums checks (Counts 37-66), all made payable to Managed Risk and mailed to the Atlanta post office box. The checks were endorsed and deposited into Managed Risk bank accounts in Atlanta and Marietta (Georgia), by Suba on dates after their issuance. Kelly and Suba applied the first $140,000 towards the purchase of the bond (Count 36). The funds were then distributed to Managed Risk shareholders (Mrs. Kelly, Suba, and the Garrison children's trusts). Between November 1990, and April 1993, Managed Risk distributed $1,719,000 (including the $1,420,237 in Preferred Care premiums) to its shareholders via twenty-seven checks signed by Suba. Mrs. Kelly received $640,000; Suba received $390,000; and the Garrison children's trusts each received $344,500. In the meantime, four things allegedly occurred: (1) Healthmaster properly deposited its workers' compensation premium checks into the Augusta WC account; (2) Medicare reimbursed Healthmaster for the checks; (3) Preferred Care employees made claims of $225,000 for their compensable injuries out of the Augusta WC account; and (4) Preferred Care employees were paid from the Augusta WC account, comprised of Medicare-reimbursed funds. The net result of this shell game, the Government contends, is that non-Medicare Preferred Care employees received $225,000 in Medicare-reimbursed funds.
The Government contends that Kelly and Suba committed mail fraud by using the United States mails to carry out their Medicare fraud scheme. As described above, in accordance with a schedule prepared by Kelly, a Preferred Care employee signed and mailed twelve workers' compensation premium checks (Counts 67-78) to Managed Risk at its Atlanta post office box. Another Preferred Care employee signed the check used to buy the $500,000 Healthmaster bond required by the state (Count 36) and thirty premium checks (Counts 37-66). All checks were mailed to Atlanta or Marietta from Augusta, made payable to Managed Risk, and endorsed and deposited by Suba in Atlanta and Marietta.
The indictment further charged Appellants with money laundering on the basis that the money in the Augusta WC account used to satisfy the $225,000 in claims consisted solely of Healthmaster premiums, reimbursed by Medicare. Thus, Government contends, Medicare funds were illegally used to satisfy (non-reimbursable) Preferred Care claims. In addition, the Preferred Care premiums were illegally converted by Managed Risk shareholders. (c) Money Laundering (Counts 106-109) by Kelly Only The Government alleged that Kelly further laundered the proceeds converted and distributed to Mrs. Kelly by investing these proceeds in stock and land. 3. The Health Insurance Fund Allegations (Counts 112-123; 125-128) The Health Insurance Fund allegations arise out of a trust account (the Greenville account) established by Healthmaster at the Carolina First Bank in Greenville, South Carolina for the benefit of its self-insured employee health and disability plan and administered by HDR, an independent third party administrator. Kelly was trustee of the Greenville account. He apparently determined the monthly $200,000 to $300,000 (in Medicare reimbursable) premiums paid into the Greenville account by Healthmaster. (a) Mail Fraud (Counts 112-115) by Kelly Only The Government alleged that Kelly, over a two-year period, disbursed $1,587,775 from the Greenville account for his own benefit and that of Master Health. He is alleged to have accomplished this scheme as follows: Kelly established another bank account in Augusta (the Augusta II account). He used false representations of being able to obtain a higher yield to induce HDR to mail Greenville account funds to him, which he deposited in the Augusta II account ($700,000; $500,000; $258,775; and $129,000). Kelly never returned the money to the Greenville account and improperly characterized two of the checks on Healthmaster's Annual Return, IRS Form 5500, as paid claims, rather than loans, transfers or investments. (b) Embezzlement from an Employee Benefit Plan (Counts 116-118) by Kelly Only for Master Health's Benefit Kelly then, the Government alleged, embezzled $960,583 through three transfers from the Augusta II account funds (composed of Medicare reimbursed funds transferred from the Greenville account) and used them to purchase a $1 million certificate of deposit for Master Health (a non-Medicare company) in order for Master Health to meet new state minimum capitalization requirements for HMOs. (c) Embezzlement from an Employee Benefit Plan (Counts 119-121) by Kelly Only for Kelly's Benefit Similarly, the Government alleged, Kelly withdrew funds from the Augusta II account and deposited them into other accounts he controlled: (1) $78,400 payable for data processing 91/92 to a special activity account established by Kelly for Employee Benefit Coordinators (EBC)7; (2) $116,160 payable to the Managed Risk advertising account; and (3) one year after EBC dissolved, Kelly wrote a $71,256 check from the August II account and deposited it into the (now defunct) EBC's special activity account. 7 EBC was a non-Medicare company established in 1987 by Kelly, Garrison and EBC's president, Peter Molloy, to market Master Health. Molloy was also vice-president of Healthmaster. He testified that he was unaware of the August II account or the EBC special activity account. In fact, Molloy testified that Kelly had opened the EBC account with a signature card on which he signed both his name and Molloy's name, without Molloy's knowledge or permission. There is no record of any work, advertising or data processing, performed for the health insurance fund by either EBC or Managed Risk. (d) Money Laundering (Counts 122-123, 125-128) by Kelly Only The indictment charges Kelly with money laundering the three checks described in (c) above. None of the three checks were reported on his income tax return:
On the same day as the transaction discussed in (c) above, Kelly wrote a second $78,400 check on the EBC account payable to his brother's company, AMAT Telecommunications (AMAT), for non-existent data processing services.8 Twelve days later, Kelly's brother wrote a $78,400 check from AMAT's account to Kelly's personal rental account.
Two weeks after Kelly transferred $116,160 from the Greenville account to the Augusta II account and deposited the funds in Managed Risk's advertising account, he moved $100,000 from the advertising account into his personal investment company, Icarus Investments, as aloan. Two weeks after that, Icarus Investments bought South Carolina real estate for $44,870.
After Kelly transferred $71,256 from the Greenville account to the Augusta II account and deposited it into EBC's special activity account, he then moved $85,000 from the special activity account to Icarus Investments' account as a loan. One week later, Kelly transferred the amount remaining from the previous loan and deposited the total [$140,000] into his personal bank account from Icarus Investments. 4. The Sizemore Allegations—Mail Fraud (Counts 110-111) These counts are based upon an allegedly fraudulent invoice from Managed Risk to Healthmaster's Augusta WC account for a $125,000 additional premium. The Government 8 Kelly was an officer of AMAT, but AMAT performed no work for EBC. contends that Managed Risk agreed to purchase a $125,000 Trust Company Bank certificate of deposit for Sizemore Security to use as collateral for a bond necessary to qualify as a self-insured.9 With supplemented assets, Sizemore Security would be able to self-insure and Managed Risk would obtain a new client. Managed Risk reimbursed itself for the certificate of deposit with Medicare-reimbursed Augusta WC account funds. Documentation was prepared, allegedly making it appear that the Augusta WC account owed a $125,000 additional premium to Managed Risk. These request documents were mailed to Trust Company Bank which in turn mailed the requested check to Managed Risk's Atlanta post office box. Thus, the Government contends, that Kelly, Suba and Managed Risk defrauded Medicare and the Augusta WC account by billing the account for a non-existing premium. Kelly argues that there is no evidence of a scheme to defraud the (Medicare funded) Augusta WC account because he had investment authority over the account, and, after Sizemore Security repaid the loan for the certificate of deposit, Managed Risk returned the principal, with interest, to the Augusta WC fund. Suba claims he had no knowledge of the wording on the invoice and that it was incorrectly reflected as a premium instead of a loan. 5. The False Statements of Garrison, Kelly & Healthmaster (a) The River Valley Allegations (Counts 11-26) The Government contends that Kelly, from 1989 to 1993, through false statements, fraudulently obtained $1,765,492 in Medicare funds, when Healthmaster purchased River Valley, an Albany, Georgia home health care agency, from four Galloway family members. The scheme was structured as follows: for the sale of River Valley, each Galloway was to receive a deposit of 9 For its services, Managed Risk charged Sizemore a $4,000 fee and one percent monthly interest. $100,000 plus $80,000 (per person) per year for ten years. Healthmaster, however, at Kelly's direction, completed the sales transaction by placing the Galloways on Healthmaster's payroll. They each received semi-monthly checks totaling $80,000, the amount they were due for the River Valley sale, as salary expense to Healthmaster yet they performed no work. Salary expenses were reimbursed by Medicare. There was testimony in the record that Kelly had been warned by a Healthmaster employee that this scheme would constitute Medicare fraud. (b) The Concealment of Related Company Managed Risk Allegations (Counts 30-32) The Government charges that Kelly and Suba fraudulently concealed their ownership in Managed Risk from Healthmaster employees, although Managed Risk operated on the Augusta premises of Healthmaster, its largest client, and, Healthmaster paid Managed Risk's overhead and travel expenses. In addition, Kelly did not identify Managed Risk as a related company on Healthmaster's cost reports for 1991, 1992, or 1993. See note 12 supra. Kelly, using Managed Risk as middleman, established the Augusta WC account, designed after Healthmaster's existing self-insured health program. See Part II C. 2. supra. Managed Risk received fees of $101,844 in 1991 and $114,382 in 1992 for managing Healthmaster's Augusta WC and Augusta II accounts.10 In the meantime, Kelly and Suba continued to receive their Healthmaster salaries. With Managed Risk posing as their middleman, the Government contends that Kelly and Suba could in essence double-bill Medicare for work they performed for Healthmaster since Managed Risk fees, like their Healthmaster salaries, were reimbursed by Medicare as operating expenses.