31 Are Indicted in Huge Auto Insurance Scam

By SONNI EFRON and DAN WEIKEL

March 1, 1990 12 AM PT

TIMES STAFF WRITERS

SANTA ANA — Thirty-one people have been indicted on charges of staging scores of vehicle accidents and collecting $1 million in phony claims in the largest auto insurance scam ever uncovered in Orange County, authorities said Wednesday.

But the case, though massive, is just one of dozens that generate up to $1 billion in phony or inflated claims in California each year, insurance company executives and fraud investigators said.

In all, they estimate that $1 out of every $5 consumers pay for auto insurance goes for fraudulent claims. Insurance companies cite fraud as a major cause of skyrocketing premium rates.

The fraud scams are myriad and ingenious, investigators said. Some plots involve submitting injury claims for phantom passengers who were never in a wreck; others use real people and cars but exaggerate the damages and injuries, investigators said.

According to the indictments unsealed Wednesday, the Orange County ring, allegedly masterminded by Fullerton body shop owner Norman Sidney Gerstein, only collected for property damages. But the ring used the same cars to submit scores of phony damage claims for accidents that never happened.

“Sometimes they’d take out five policies in a two-day period on the same car,” said Officer Theresa Clark, who investigated the case for the California Highway Patrol.

The car owners would then allegedly damage the autos, which included a Porsche and a Mercedes-Benz. They would then report to the insurance companies that one car had run into two to four others in a parking lot, and the policy owner of each car would collect up to $10,000 in property damages, investigators said.

In almost all of the cases, the policies had been issued just days or weeks before the “accident” and were canceled as soon as the insurance checks arrived.

The checks were always endorsed either by Gerstein or by another suspect, whom investigators refused to identify because he is still at large. Clark declined to say how the insurance proceeds were divided among the defendants, or how much Gerstein allegedly earned from the scheme.

Investigators said the defendants were familiar with police and insurance procedures and tailored their claims accordingly. For instance, they always claimed the accidents took place in parking lots, because they knew that neither police nor the CHP would investigate a parking lot crash in which no one was hurt. And they never claimed to be injured, knowing that insurance companies scrutinize injury claims more carefully.

Once they had collected from the first insurance company, Clark said, the defendants filed similar claims on the same cars with other companies, varying the details of the parking lot accident only slightly.

“It was always parked cars,” Clark said. “They’d say, ‘A kid ran out in front of me and I swerved to avoid him and I hit the parked cars.’ ”

In other cases, the “driver” claimed to have lost control of the car after dropping a lighted cigarette or a cup of coffee, Clark said.

“One of them said (the crash) happened in the Santa Ana courthouse parking lot,” Clark said.

The cars were sometimes used for several claims, repaired and then damaged again and used in several more “accidents,” with Gerstein’s auto body shop used to generate fake repair estimates, investigators said.

The body shop at 210 E. Santa Fe Ave. in Fullerton used several names, including Auto Customizers and California Design, but never actually repaired cars, Clark said. Since the insurance companies did not demand to inspect the cars, there was little need. One car was used for as many as 20 “accidents” and was never repaired at all, the CHP said.

The insurance companies hit by the scam included Farmers Insurance, State Farm, Mercury Casualty, Allstate, Travelers and Auto Club of Southern California, the CHP said. Orange County Deputy Dist. Atty. Dan McNerney said Farmers alone had paid out $100,000 for the ring’s bogus claims.

“I’m not surprised by the losses,” McNerney said. “It’s an easy thing to do, especially when the claims don’t involve personal injury. They tried to get $3,000 to $5,000 per vehicle--amounts that investigators usually aren’t suspicious about.”

Authorities first got wind of the ring in March, 1987, when an Orange County sheriff’s deputy arrested one of the suspects for having fake identification. But the suspect also had several insurance policies in different people’s names. The Sheriff’s Department handed the case over to the California Highway Patrol, which submitted the case to the Orange County Grand Jury after 2 1/2 years of investigation.

Last Thursday, the grand jury issued a sealed, 28-page indictment charging each of the 31 suspects with conspiracy to commit grand theft. Gerstein, 38, of Colton, was charged with nine conspiracy counts as well as one count of possession of cocaine for sale.

His wife, Jeanne Ann Gerstein, 37, was also indicted. Clark identified Gregory Ian Hodges, 37, of Lakeland, Calif., and Robert Joseph Lewis, 35, of Irvine, as employees of Gerstein and key players in the alleged scam.

Authorities identified 60 people who had taken out fake insurance policies, but only 31 were indicted. The defendants allegedly submitted 57 false claims to nine insurance companies from April, 1986, to March, 1988.

The CHP asked that the indictments be sealed to prevent the suspects from fleeing before they could be arrested. Early Tuesday, CHP officers arrested 18 of the 31 suspects, including Gerstein and his wife, during raids in Orange, Riverside and Los Angeles counties, as well as in Sacramento. Three more of the accused turned themselves in to the court Wednesday morning. Another suspect is serving a prison sentence for an unrelated crime.

Gerstein was arrested at an auto body shop in Ontario and was being held Wednesday in Orange County Jail on $250,000 bail, authorities said. Prosecutors have asked the court to require Gerstein to show that his bail money was not gained through the illicit scheme before he is released.

Gerstein is expected to be arraigned Friday morning with some of the other defendants, McNerney said. Others will be arraigned in two weeks, he added.

Nine of the accused are still at large and investigators believe that at least four of those have left the state. They are now being sought in Florida, Oregon and Georgia.

If convicted, the defendants could face a maximum penalty of three years in prison on each count of conspiracy to commit grand theft. On the cocaine charge, Gerstein also faces an additional four years.

Gerstein is also suspected in a second fraud ring that involved employees of two more insurance companies, said Chief Clarence C. Tuck of the CHP’s border division based in San Diego. Tuck declined to comment further because that case is still under investigation.

CHP officials said a general climate of public ill will toward insurance companies leads some to be complacent about insurance fraud. But, they warned, it is not a victimless crime.

“I think the public should know they’re getting ripped off real bad by these fraud rings, not just on property damage, but on bodily injury,” Clark said. “And we’re all paying for it on our rates.”

31 NAMED IN INSURANCE FRAUD INDICTMENT

Each person named in the indictment is charged with at least one count of conspiracy to commit grand theft in connection with an auto insurance fraud scam centered in Orange County. The California Highway Patrol said nine are still at large and asked that their names be withheld until they can be arrested. Here is the status of the 22 others:

Richard Bowman, 33, of Brea; arrested Tuesday, released on bail.

Louis Wayne Catanos, 54, of Ontario; in prison serving a term for an unrelated offense.

Scott Christopher Ewing, 21, of Mission Viejo; turned himself in Wednesday.

Norman Sidney Gerstein, 38, of Colton; alleged ringleader; being held in Orange County Jail in lieu of $250,000 bail.

Jeanne Ann Gerstein, 37, of Colton; arrested at home Tuesday, released on bail.

Russell J. Greaves, 34, of Huntington Beach; arrested Tuesday.

Gregory Ian Hodges, 37, of Lakeland; in custody.

Ronald James Holbrook, 35, of Brea; released on bail.

Robert Joseph Lewis, 35, of Irvine; in custody.

Leonard Thomas Mazotti, 33, of Corona del Mar; turned himself in Wednesday.

Edward Joseph Minnick, 41, of Yorba Linda; released on bail.

Richard Minnick, 39, of Yorba Linda, his brother; released on bail.