Los Angeles Times, Sunday, August 6, 2000

D.A.'s Office Got $1 Million of Fraud Victims' Award

Finances: The money came from a settlement in workers' compensation claim thefts. Eight victims were repaid $44,000, but few others were located.


     In its pursuit of private funding, the Los Angeles County district attorney's office found a way to make itself an extra $1 million at crime victims' expense.
     The money came from Dr. Mark Kaplan, a psychiatrist-entrepreneur who had stolen it from insurance companies and employers. Kaplan operated clinics that committed widespread workers' compensation insurance frauds.
     Prosecutors negotiated an unusual plea bargain with Kaplan to settle a case in 1995 that they still tout as their biggest success against workers' compensation fraud. One of the features that made it unusual was that Kaplan walked away a multimillionaire.
     Though prosecutors charged that Kaplan had stolen at least $30 million from insurance companies and employers, prosecutors could find only $7 million. They required Kaplan to pay back only $4.5 million and let him keep $2.5 million.
     The decision to let Kaplan keep the money--on the theory that he had earned it before he became a thief--contrasts sharply with the professed policy of Dist. Atty. Gil Garcetti.
     Garcetti declined to comment for this article.
     But the district attorney, who is running for a third term against challenger Steve Cooley, addressed the subject in a recent campaign debate. Discussing workers' compensation cases, Garcetti declared: "My requirement was, you're going to see mandatory state prison sentences and we're going to take all of their money. All of it."
     Of the $4.5 million that Kaplan was ordered to pay, not all went to the victims.
     The district attorney's office took $1 million off the top to repay its private funder, the state Fraud Assessment Commission, for the costs of investigation and prosecution.
     Then it took another $1 million for itself.
     Deputy Dist. Atty. Edward Feldman, the head of the district attorney's workers' compensation fraud unit at the time, defended the deal as an appropriate use of a law that gives prosecuting agencies an incentive to go after white-collar criminals.
     Feldman was so proud of it that he displayed outside his office a giant photocopy of the check made out to the district attorney's office, in what he said was intended as a morale booster for his attorneys.
     The extra money came in handy. At the time of the settlement, the district attorney's office was hurting financially. Garcetti was in a huge public fight with the county Board of Supervisors over what he said was inadequate funding. He had even started pulling prosecutors out of the workers' compensation fraud unit because, he said, he did not have enough prosecutors for a higher priority: fighting street crime.
     Kaplan specialized in certifying workers as having suffered on-the-job injuries. One way Kaplan generated volume was by paying people to recruit uninjured workers from unemployment lines. Then he would submit exorbitant bills to insurance companies for services such as X-rays that he never performed. Kaplan faced 10 to 12 years in prison for insurance fraud, Feldman said. In the plea bargain, Superior Court Judge Nancy Brown sentenced him to eight. He was out in four.
     The financial deal was worked out at the same time and set forth in a separate civil settlement in which Kaplan also agreed to abandon efforts to collect from insurance companies about $10 million in outstanding bills.
     "It was the subject of intense negotiation as to how much money he was going to give up and how much time he was going to serve," said Kaplan's lawyer, Mark Werksman.
     The district attorney's office allowed Kaplan to keep $2.5 million in assets he was said to have accumulated before the frauds began. This did not include millions more that Kaplan had stashed in Swiss banks, a prosecutor said.
     After the Fraud Assessment Commission and the district attorney's office got their cuts, that left $2.5 million to repay victims.
     But only eight victimized employers were repaid, for a total of $44,000. From the same pot, eight insurance companies were reimbursed a total of several hundred thousand dollars for costs they incurred in helping to investigate Kaplan.
     Prosecutors did not know what to do with the rest. Feldman recalled being frustrated because few victimized insurance companies stepped forward with proof that they had been ripped off. Seeking them out would have been too difficult and costly, he said.
     As an alternative, prosecutors turned over the remaining $2 million to the fraud commission.
     Then they asked for some of it back.
     In a letter to the commission, Feldman called it "a great irony" that "Los Angeles County efforts have brought in nearly $2 million of funds to augment the funding of workers' compensation fraud programs for this fiscal year, yet none of it has been allocated to Los Angeles."