California insurance regulators bust disability fraud scheme, 12 arrested

LOS ANGELES — A California Department of Insurance-led investigation with assistance from the California Department of Justice has resulted in the arraignment of 12 suspects today on over 110 felony counts including conspiracy, insurance fraud, and grand theft for their alleged involvement in a disability fraud scheme which netted the suspects over $450,000 from insurance carriers and over $60,000 from the COVID-19 Relief Program.

Department of Insurance detectives conducted numerous search warrants and interviews and determined the alleged ringleaders, a husband and wife from Rancho Cucamonga, used “shell” companies to apply for short-term group disability policies offered by private insurance carriers and through the COVID-19 Relief Program. They would then recruit individuals to be fictitious employees and would file fraudulent disability claims under those fictitious employees.

“These suspects allegedly used false companies and fictitious employees to take advantage of a system designed to help injured workers,” said Insurance Commissioner Ricardo Lara. “These types of schemes negatively impact consumers and businesses through higher costs. We will continue to work with our law enforcement partners to protect consumers and combat insurance fraud.”

“Crimes against a program like the state’s short-term disability fund, which is designed to provide relief to injured Californians by providing them with financial assistance during trying times, will not be tolerated,” said Attorney General Rob Bonta. “Those who steal from these programs are stealing from the families who rely on them. My office will vigorously pursue anyone who commits fraud against these critical programs.”

The Department of Insurance opened an investigation in April of 2020 after receiving several suspected fraud referrals from multiple insurance carriers claiming numerous individuals applied for disability insurance policies using fraudulent information or filed fraudulent disability claims using fraudulent information.

This alleged fraud scheme resulted in a loss of approximately $458,732 to the insurance carriers. The ringleaders collected most of the profit from the scheme and would give those they recruited a percentage of the proceeds for their participation.

Suspects were arrested throughout the state on Thursday, April 6, 2023, and Friday, April 7, 2023. The Office of the Attorney General is prosecuting the case.