New Indictments Seen In N.J.'s Largest P-C Fraud

By Mark E. Ruquet

NU Online News Service, Feb. 17, 4:18 p.m.EST?The prosecutor who secured the indictment of a brokerin a $78 million fraud?the biggest to ever hit New Jersey'sproperty-casualty insurers?said charges are expected againstaccomplices in the scheme.[@@]

New Jersey Deputy Attorney General Lewis Korngut said inaddition to broker Vito Gruppuso, who pleaded guilty and isawaiting sentencing in the case within the month, that several ofMr. Gruppuso's unnamed confederates are facing indictment.

Mr. Korngut said that the U.S. Attorney's Office in Newark,N.J., is also looking into aspects of the case. A spokesman for NewJersey U.S. Attorney General Christopher J. Christie said he wouldnot comment.

Mr. Gruppuso, the owner of now defunct National ProgramServices, based in Cedar Knoll, N.J., placed insurance business fora number of very large commercial real estate management firmsthroughout the United States, according to Mr. Korngut.

The firms were involved in the management of such real estatecomplexes as condominiums, major apartment complexes and malls, hesaid.

The schemes began in 1998 when Mr. Gruppuso misrepresented anaccount to Wausau Insurance Co., not telling the insurer the fullrisk history of the client, according to the prosecutor. The clientreceived a much lower premium and the initial scheme began tounravel when the claims started coming into the insurer, Mr.Korngut explained.

He also misrepresented to the policyholder the type of policythe insured was getting, telling them "they were going to get thegold policy, and they got the bronze," said Mr. Korngut.

He said this was Mr. Gruppuso's pattern for doing business thathe used over the next four years. "He did this to get the businessfrom the insured because he could not get the rate that they wantedwith the type of risk they were," Mr. Korngut continued.

To cover his tracks, Mr. Gruppuso began paying the claims forwhat was not covered. To finance this enterprise, he beganborrowing money from banks and keeping premiums. The money was usedprimarily to cover the claims, the prosecutor said.

To get additional loans from banks, Mr. Gruppuso, with a coupleof accomplices who are yet to be indicted, began to fabricate bondsto cover loans, Mr. Korngut said.

Acting as a general agent for insurers, in addition to Wausau,he issued policies from other companies identified as VirginiaSurety, XL Insurance and a subsidiary of AIG, National Union, theprosecutor said. Mr. Korngut noted that under the law, even thoughthe companies did not receive their premiums, they still had tohonor the client's policies because of the general agentrelationship.

He said a subsidiary of Kemper Insurance provided bonds to coverloans Mr. Gruppuso obtained. In total, the insurance companies weresaid to be out more than $78 million.

Mr. Gruppuso faces up to 10 years in prison on the state chargesand could face federal charges, Mr. Korngut said. Mr. Gruppusoshould plead to federal charges within a month. He said the brokerwill probably serve both state and federal time concurrently.

Mr. Korngut said the broker's illegal activity was driven by hisdesire to become a major player in the industry."He wanted to bethe guy," said Mr. Korngut.