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47 Accused in an Insurance Claim Scheme

New York Times, September 22, 1995

By George James

In what a Manhattan grand jury indictment called "a pervasive pattern of criminal conduct," 47 people were charged yesterday in a widespread scheme in which insurance company adjusters were said to have been bribed to expedite personal injury settlements involving unsuspecting clients and more than a dozen insurance companies.

Twenty-one lawyers and 16 insurance adjusters were charged, as were 6 people accused of acting as middlemen -- known in the industry as 10 percenters because of the kickbacks they skimmed from the settlement. Also indicted were two law firm employees.

A second set of indictments charged a lawyer and an adjuster from the same group and two people who posed as victims with making fictitious claims in five cases.

District Attorney Robert M. Morgenthau of Manhattan described a scheme in which 10 percenters took illegal fees from the lawyers, took a share for themselves, and paid the adjusters to expedite settlements.

In all, the settlements amounted to $39 million, of which $19 million is covered in the indictment.

In announcing the indictments, he said that from 1991 to 1994, the adjusters received more than $300,000 in bribes while the middlemen took in more than $500,000. The lawyers took high fees, sometimes from inflated settlements, he said.

At about 2 p.m. yesterday, the lawyers were escorted by detectives from the State Office building at 80 Centre Street in lower Manhattan, where they had surrendered. As they passed a sidewalk fruit stand on their way to the Criminal Courts Building at 100 Centre Street, some tried to look casual for television and still cameras, while others used their hands, books and newspapers to shield their faces. All 47 defendants pleaded not guilty to charges ranging from commercial bribery to scheme to defraud.

Mr. Morgenthau said he could not recall any single case in which so many lawyers were indicted and he added that more than 100 lawyers were under investigation in a scheme that he called more pervasive than the indictments indicated.

"I think we're going to prosecute some additional cases over a period of time," Mr. Morgenthau said at a news conference in his office in lower Manhattan. "Unfortunately, I think it's very extensive. We had many more than the 21 lawyers named here."

Most of the claims would have been paid anyway, Mr. Morgenthau said, but the scheme speeded up payments of settlements and in some cases resulted in "perhaps getting more money." But he said that proving settlements to be inflated was difficult and that such charges were not covered in the indictment.

"Ultimately, the people who have the insurance pay a higher premium," Mr. Morgenthau said. "It raises the cost of doing business for the insurance company, and the insurance company passes the cost of doing business on to the consumer, so ultimately it's the consumer who gets hurt."

An aide close to him, Roslynn R. Mauskopf, chief of the frauds bureau, added, "We are saying the bribes were financed through the settlements. The insurance company paid for the bribes as part of the settlement. It was factored in."

Under the scheme, the middlemen, former insurance adjusters or lawyers would learn of cases from corrupt adjusters who were their contacts in insurance companies, court papers said. They then would approach lawyers for plaintiffs and ask for money to expedite a settlement, Mr. Morgenthau said. In some lengthy and difficult cases, it was the lawyers who sought out the middlemen.

Prosecutors said the case surfaced three years ago when a former claims adjuster, John Prins, 55, acting as a middleman, approached a lawyer and sought a fee to broker a speedy settlement in two injury cases, one involving a truck accident, the other an auto accident.

The lawyer, Jay B. Itkowitz, informed the Manhattan District Attorney's office, saying Mr. Prins had wanted a bribe for himself and the adjuster. Mr. Itkowitz then helped in the subsequent investigation. Mr. Prins was charged yesterday with a scheme to defraud in the first degree and numerous counts of commercial bribing and commercial bribe receiving in the first and second degree.

Mr. Prins's lawyer, Salvatore R. Russo, denied Mr. Itkowitz's allegation after the arraignment yesterday, saying his client had never committed any wrongdoing and knew Mr. Itkowitz from other cases.

Mr. Morgenthau singled out Mr. Itkowitz for praise yesterday, saying, "He's a credit to the legal profesison and the general public."

Mr. Itkowitz, 46, a former assistant City Corporation counsel in the Koch administration, said he could not discuss the case but played down his role.

"It's not a question of being an honest lawyer," Mr. Itkowitz said. "It's a matter of being an honest citizen and I don't think that's unusual. I think there are a lot of people who are honest."

All of the defendants pleaded not guilty to a range of charges, including schemes to defraud in the first degree, before Justice Leslie C. Snyder, who released most of them on their own recognizance. Bail for some ranged between $15,000 and $250,000.