Texas Department of Insurance

Brokers Charged with Alleged $4-Million Fraud Against Hospital: Fraud [06/25/09]

Two South Texas insurance brokers have been charged with allegedly attempting to defraud Valley Baptist Hospital of South Texas out of approximately $4 million in the sale of surplus lines policies and coverage for hurricanes from 2006 to 2008, U.S. Attorney Tim Johnson of Houston announced.

A 10-count indictment unsealed Tuesday charges Brent A. Carter, 46, of Harlingen, and Michael N. Swetnam Jr., 54, of Los Fresnos, with conspiracy, mail fraud and wire fraud, Johnson reported.

Valley Baptist is the largest provider of medical services in South Texas and includes a retirement community, a fitness center, a medical equipment distributor, a managed care health plan provider and a network of health care facilities offering specialty services, such as home health and hospice care, dialysis and rehabilitation.

According to allegations in the indictment, Carter and Swetnam overcharged the hospital on two surplus policies that were purchased from Zurich in New York.

After purchasing the policies, Carter and Swetnam altered the documents to misrepresent the premium owed by the hospital, the indictment alleges.

“The fraudulent premium enabled Carter and Swetnam to make a 100% profit on the sale of the two policies, in addition to their standard 10% commission, for a profit of more than $2 million,” Johnson reported.

Swetnam and Carter also are charged with selling the hospital two nonexistent policies for hurricane coverage for two hurricane seasons from 2006 to 2008.

For one policy, Carter and Swetnam allegedly arranged a meeting in Mexico where hospital administrators traveled to meet with them to discuss the purchase of hurricane coverage.

During that meeting in 2006, Carter and Swetnam allegedly provided Valley Baptist three insurance “cover notes” for nonexistent insurance companies upon which the signature of a British Virgin Islands insurance manager had been forged.

For the hurricane policy on the following year, Swetnam and Carter “simply told Valley Baptist representatives they could obtain their hurricane/windstorm coverage ‘cheaper’ than the year before,” the indictment alleges.

“Again, Swetnam and Carter provided Valley Baptist with an insurance confirmation for a totally nonexistent insurance company, in which the signature of the insurance manager had been forged.

“Carter and Swetman made approximately $2 million off of the sale of these fraudulent policies,” the indictment contends.

The indictment provides notice to each defendant “of the intent of the United States to forfeit their interest in the ill-gotten gains they allegedly obtained from the insurance fraud scheme.    

The maximum penalty, upon conviction, for mail and wire fraud is 20 years in prison and a $250,000 fine. The conspiracy charge carries a maximum term of imprisonment of five years and $250,000 fine.

This case was investigated by the United States Postal Inspection Service with the assistance of the Texas Department of Insurance.

Source:  Office of the United States Attorney, Houston