By Kathryn Brenzel
Law360, New York (August 13, 2013, 4:27 PM ET) — A Texas attorney has been indicted on charges that he ran a Ponzi-like scheme that scammed insurance plan managers and their clients out of millions intended for stop-loss insurance for health care benefit programs, instead spending the money on credit card and mortgage payments.
Editor’s Note: This article sounded familiar so we went back through our archives and found this: TexcessRe
Hugh Lappe Scott Jr., 62, who runs a private practice in the San Antonio area, allegedly used his reinsurance companies Vado AG, United Re AG and Texcessre to defraud EBS of Ohio and others, according to the indictment handed down last week in Texas federal court. From 2002 to March 2011, he used money pooled from the insurance plan administrators to cover claims, rather than actually purchasing reinsurance, according to the indictment.
The attorney told insurers that no more than 20 percent of the payments provided to his companies would be dedicated to administration and management costs, and that at least 80 percent would pay reinsurance premiums, according to the indictment.
But Scott actually used the money to pay for claims, as well as a slew of personal expenses, including credit card, mortgage and preparatory school bills, according to the indictment. He also allegedly wrote checks to his wife and his sole employee.
Scott declined to comment on Tuesday, referring all questions to his attorney, Mark Stevens. Stevens did not immediately return calls for comment.
The attorney faces a 42-count indictment, which includes health care fraud and theft from health care benefit program charges. His co-defendant, Deborah S. Williams, who worked at one of Scott’s businesses, was hit with a 19-count indictment last week, alleging she embezzled at least $19,000 from the reinsurance funds to pay for personal expenses, according to court documents.
It wasn’t immediately clear how much Scott allegedly stole, but prosecutors said he owes at least $12 million in unpaid claims. He faces up to 10 years in prison on each count of the indictment.
Assistant U.S. Attorney William R. Harris called the fraud “particularly reprehensible.”
“Health care is a basic, core need for people,” he told Law360 on Tuesday. “He simply hung onto the money as needed, to pay claims and otherwise as he chose.”
This isn’t the first time Scott has run into trouble with his reinsurance companies. In 2008, United Re AG allegedly promised to provide Louisville Bedding Co. with stop-loss insurance for its self-insured employee plan. But the company slapped United with a suit in Kentucky state court, after the company refused to pay a claim for $925,000 in employee medical expenses.
The trust didn’t answer the suit and was hit with default judgment, and the bedding company recently secured a victory over Scott in Kentucky appeals court, where Scott’s push for arbitration on the insurance contracts was rejected.
Scott is represented by Mark Stevens.
The case is USA v. Scott, case number 5:13-cr-00636, in U.S. District Court for the Western District of Texas.
–Editing by Stephen Berg.
