Racketeering Conviction Included Largest No Fault Insurance Fraud Scheme Ever Charged
Preet Bharara, the United States Attorney for the Southern District of New York, announced that MIKHAIL ZEMLYANSKY was sentenced today to 15 years in prison in connection with his operation, from 2007 through 2012, of a sprawling racketeering conspiracy that engaged in the largest single no fault automobile insurance fraud scheme ever charged, two investment fraud schemes that resulted in losses to nearly 300 victims of approximately $17 million, multiple complex money laundering operations, and illegal gambling. Zemlyansky was convicted on March 19, 2015, following a four-week jury trial, of racketeering conspiracy, securities fraud, wire fraud, and mail fraud. He was sentenced today by the United States District Judge J. Paul Oetken, who presided over the trial.
U.S. Attorney Preet Bharara said: “Driven by an insatiable greed, Mikhail Zemlyansky operated a sophisticated criminal enterprise that, during a five-year span, preyed on hundreds of innocent victims, reaping tens of millions of dollars in illicit proceeds. Zemlyansky’s criminal schemes were wide-ranging, from insurance and securities fraud to illegal gambling. Thanks to the tireless work of the prosecutors and our partners at the FBI and NYPD, justice has now been served for Zemlyansky.”
According to the Superseding Indictment, evidence admitted at trial, court filings, and statements made in open court:
From at least 2007 through 2012, ZEMLYANSKY was a leader, along with co-defendant Michael Danilovich, of a criminal enterprise engaged in a pattern of racketeering that included a massive scheme to defraud automobile insurance companies under New York’s no fault insurance law, multiple securities fraud schemes, money laundering, and the operation of illegal gambling businesses (the “Zemlyansky/Danilovich Organization”).
As part of the enterprise, ZEMLYANSKY was convicted for operating two investment fraud schemes that swindled nearly 300 innocent victims out of approximately $17 million. Both schemes – Lyons Ward & Associates and the Rockford Group – purported to be settlement claims funding companies that invested in lawsuits in return for a portion of future settlements. As part of these schemes, ZEMLYANSKY, Danilovich, and their co-conspirators created bogus documents and account statements used by cold-callers working in boiler rooms to solicit victims through lies. In reality, there was no investment fund at all; instead, ZEMLYANSKY and his co-conspirators simply stole the money invested by victims and laundered the proceeds by wiring them overseas to shell companies in Eastern Europe, which were then converted into cash in the United States.
In addition to the investment fraud schemes, ZEMLYANSKY and his co-conspirators perpetrated a sophisticated scheme to steal hundreds of millions of dollars from automobile insurance companies. Under New York State law, every vehicle registered in the State is required to have no fault automobile insurance, which enables the driver and passengers of a registered and insured vehicle to obtain benefits of up to $50,000 per person for injuries sustained in an automobile accident, regardless of fault (the “No Fault Law”). The No Fault Law requires prompt payment for medical treatment, thereby obviating the need for claimants to file personal injury lawsuits in order to be reimbursed. New York State Law also requires that all medical clinics in the State be incorporated, owned, operated, and controlled by a licensed medical practitioner in order to be eligible for reimbursement under the No Fault Law. Insurance companies will not honor claims for medical treatments from a medical clinic that is not actually owned, operated, and controlled by a licensed medical professional.
From at least 2007 through 2012, the Zemlyansky/Danilovich Organization defrauded automobile insurance companies of hundreds of millions of dollars by, among other things, creating and operating medical clinics that provided unnecessary or excessive medical treatments in order to take advantage of the No Fault Law. The Organization fraudulently owned and controlled more than a dozen medical professional corporations (“PCs”) – including no fault clinics, MRI offices, and acupuncture and chiropractic PCs – by recruiting and paying licensed medical professionals to use their licenses to incorporate the PCs. ZEMLYANSKY and his co-conspirators paid kickbacks of thousands of dollars to runners to recruit patients to receive the same battery of tests and treatments, and received kickbacks from other co-conspirators for referring patients for additional unnecessary treatments. All told, the Organization billed insurance companies for hundreds of millions of dollars in fraudulent medical treatments. ZEMLYANSKY and his co-conspirators laundered the proceeds of the fraud through check cashing entities and shell companies, and used the money to pay for luxury cars, watches, and vacations.
Finally, the Zemlyansky/Danilovich Organization operated high-stakes illegal poker games in Brooklyn and New York City that netted profits of tens of thousands of dollars per game.
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As part of the sentence imposed today by Judge Oetken, ZEMLYANSKY, 39, of Hewlett, New York, was further sentenced to three years of supervised release and was ordered to pay a fine of $50,000 and forfeiture and restitution to the victims of his crimes in the amount of $29,575,846.30.
At ZEMLYANSKY’s first trial in the fall of 2013, a mistrial was declared on Count One – which charged ZEMLYANSKY with a different racketeering conspiracy – after the jury failed to reach a unanimous verdict. At that trial, ZEMLYANSKY was acquitted of eight counts of charges related to the no fault insurance fraud scheme and money laundering.
On November 5, 2015, co-defendant Michael Danilovich was convicted following a five-week trial before United States District Judge Deborah A. Batts of 16 counts of racketeering conspiracy, securities fraud, health care fraud, mail fraud, wire fraud, and money laundering charges related to the crimes committed by the Zemlyansky/Danilovich Organization. Danilovich is scheduled to be sentenced by Judge Batts on March 8, 2016.
U.S. Attorney Preet Bharara thanked the Federal Bureau of Investigation and the New York City Police Department for their continued outstanding work in this investigation. Mr. Bharara also thanked the National Insurance Crime Bureau, the investigative units of the insurance companies, the Manhattan District Attorney’s Office, and the Alabama Securities Commission for their valuable assistance with the investigation.
The case is being prosecuted by the Office’s Violent & Organized Crime Unit. Assistant U.S. Attorneys Daniel S. Goldman, Daniel S. Noble, and Joshua A. Naftalis are in charge of the prosecution.