Hollywood-based ‘sham’ health insurance agency hit with guilty verdicts, $195 million judgment [South Florida Sun-Sentinel]

Two men accused of running a Hollywood-based health insurance agency that scammed more than 400,000 clients have been found guilty in an Illinois federal court.

The ruling comes just five days after a South Florida federal judge, in a separate civil trial, issued a $195 million judgment against the company, Simple Health Plans LLC, and its CEO Steven J. Dorfman.

A jury in the Southern District of Illinois found Dorfman and the company’s executive vice president, John A. Sand, guilty on 13 counts each of various charges of conspiracy to commit mail and wire fraud, as well as mail and wire fraud.

Prosecutors in the 11-day criminal trial argued that Simple Health Plans generated more than $190 million in revenue from 2012 to 2018 by deceiving consumers into buying “sham” health insurance policies that they were told complied with requirements of the Affordable Care Act.

A sentencing date will be determined in the future. The men face maximum penalties of 30 years in prison on the conspiracy charges and 20 years on the mail and wire fraud counts.

The South Florida ruling stemmed from a 2018 complaint by the Federal Trade Commission that the defendants violated its Telemarketing Sales Rule. The ruling bans Simple Health, Dorfman and five related entities from telemarketing and from marketing, promoting, selling or offering any healthcare products.

Samuel Levine, director of the FTC’s Bureau of Consumer Protection, praised the ruling in a prepared statement. “We are pleased the court recognized this blatant bait and switch and ordered the company and its CEO to turn over the money they bilked from consumers,” it said.

The FTC, in a news release, said it planned to use assets frozen in the case to provide refunds to Simple Health’s customers.

Dorfman and Sand denied wrongdoing in the criminal case, and Dorfman fought against the FTC charges since 2018.

A third defendant, Candida Girouard, Simple Health’s Chief Compliance Officer, agreed in February 2021 to settle the FTC’s charges and entered a guilty plea in the criminal case last November. Her sentencing is scheduled for May 15.

Prosecutors say the company used a deceptive sales script to trick people into buying what they later found out were limited indemnity plans that have a low cap on the amount of medical expenses they cover. After those caps are reached, prosecutors say, the patients are responsible for paying 100% of remaining medical expenses.

But sales representatives were required to tell prospective customers that they were buying low-cost insurance that would cover preexisting medical conditions, prescription drugs, primary and specialty care treatment, inpatient and emergency hospital care, surgical procedures, and medical and laboratory testing.

According to FTC filings, Simple Health lured customers by creating a network of deceptive lead generation websites that claimed to provide comprehensive information about government-sponsored health insurance policies. The sites misleadingly featured the logos of the AARP and well-known insurers such as Blue Cross Blue Shield, but the defendants were not affiliated with such entities, the FTC said.

Customers were sold “PPO” plans that cost up to $500 a month. They were told the plans were widely accepted by doctors in their geographic areas and, in many cases, required no copays or deductibles, the FTC said.

Customers learned they’d been scammed only after they underwent expensive medical procedures and found out they weren’t covered, the FTC said.

A federal judge in South Florida shut down the operation by issuing a temporary restraining order on Nov. 1, 2018, as open enrollment for ACA health insurance plans was getting underway.

The judge’s order in the FTC case on Wednesday stated that Dorfman was “well-aware of the deceptive conduct.” Dorfman, the order said, “wrote, reviewed, and trained employees” on the telemarketing scripts. He also listened to sales calls, was aware of customer complaints and monitored negative online reviews, according to the order.

He also instructed employees to purchase “burner phones” to create false positive reviews to submit to the Better Business Bureau, the order said.

How much of the $195 million that Simple Health was ordered to repay can be recovered is questionable. A court-appointed receiver reported in October that he had amassed $28.9 million by liquidating various company assets.

Still to be sold are 13 pieces of jewelry and two luxury automobiles purchased with proceeds of the operation — a 2013 Land Rover Range Rover and a Rolls-Royce Wraith, the receiver said.

In 2019, the receiver canceled the lease, against Dorfman’s wishes, of a 2012 Lamborghini Aventador that Dorfman and his then-bride Izabella Frietas were photographed in front of during a $300,000 wedding ceremony in Bal Harbour in March 2018, records submitted by the receiver show. Court records show the couple filed for divorce in May 2020.

In a 2022 agreement with the FTC, Benefytt Technologies, the provider of the plans sold by Simple Health Plans, agreed to repay customers $100 million while neither admitting or denying allegations it participated in “deceptive, unfair and abusive acts.”

Benefytt continued to sell association memberships and Medicare Advantage plans marketed on cable news channels by aging celebrities like Joe Namath, William Shatner and Jimmie “J.J.” Walker.

But the $100 million payment, combined with $27.5 million paid to settle a class-action lawsuit and $11 million paid to settle claims by the Securities and Exchange Commission related to the company’s role in the operation, contributed to cash flow problems that forced Benefytt to file for bankruptcy protection from creditors last year, the company said in its bankruptcy filing.

Ron Hurtibise covers business and consumer issues for the South Florida Sun Sentinel. He can be reached by phone at 954-356-4071, on Twitter @ronhurtibise or by email at [email protected].