A New and Creative Type of Insurance Fraud

Barry Zalma's Profile

If criminals would put in the effort and skill they use to defraud insurers they would own a multi-million dollar business. Rather, they get short term profits and then find themselves is an 8 foot by 12 foot cell in a federal prison.

In United States Of America v. Carlo Michell, No. 16-16208, United States Court Of Appeals For The Eleventh Circuit (March 22, 2018) Carlo Michell, a very creative criminal, appealed his 57-month sentence imposed after he pled guilty to conspiracy to commit access device fraud.

FACTS
The indictment to which he pled guilty charged Michell and two other co-defendants with using customer identification information to fraudulently obtain wireless devices from AT&T Wireless. AT&T offers insurance that provides for a replacement wireless device if a customer’s phone is lost, stolen, or damaged. To get the replacement device, the customer pays a deductible and provides a personal identification number (“PIN”). Michell and his co-conspirators got customer information from Teleperformance USA Corp., a contractor that provides customer service for AT&T. Five employees at Teleperformance accessed the personal account information of 3,700 AT&T customers—including the customers’ names, telephone numbers, and PINs—and sold that information to Michell and his co-conspirators. Using this information, the conspirators made false claims to AT&T for replacement wireless devices. Michell used his Facebook page to coordinate the receipt of the fraudulently obtained wireless devices by other co-conspirators. In total, approximately 3,800 wireless devices were shipped to Michell and his co-conspirators.

THE PRESENTENCE INVESTIGATION
The presentence investigation report (“PSR”) sets out that Michell recruited at least five people to receive shipments of wireless devices, and instructed them to send the wireless devices to him or a co-conspirator. After recruiting them to the conspiracy, he also asked two of them if they “wanted to come work for him instead” of another conspirator. Michell objected to certain portions of the PSR, including the attribution of the total loss amount of the conspiracy to him as well as a sentencing enhancement based on the number of victims. The government also objected to the PSR, arguing that Michell should receive sentencing enhancements for trafficking in unauthorized access devices and for his role in the offense. The district court sustained the government’s objections, overruled Michell’s objections, and sentenced him to 57 months in prison.

ISSUE
Michell argues the district court should not have applied a two-level enhancement under Guidelines § 2B1.1 because the only victim was AT&T.

Language in the guidelines is given its plain and ordinary meaning. Ordinarily, the guidelines commentary is authoritative, unless it violates the Constitution or a federal statute, or is inconsistent with, or a plainly erroneous reading of, that guideline.

The commentary to § 2B1.1 defines a “victim” as “any person who sustained any part of the actual loss” as a result of the offense. In cases involving means of identification, a victim is further defined as “any individual whose means of identification was used unlawfully or without authority.”

The names and PINs of the AT&T customers are means of identification, and they were used without authorization. More than ten AT&T customers information was stolen because Michell admitted Teleperformance employees accessed 3,700 customer accounts, and admitted 3,800 wireless devices were ultimately obtained as a result of the conspiracy. Michell argued, again creatively, that he did not directly steal the identifying information, but merely bought it second-hand. However, the enhancement applies when a defendant uses the means of identification. Michell does not dispute that he used the names and PINs to fraudulently obtain wireless devices. Michell and his co-conspirators used thousands of customers’ information to fraudulently obtain wireless devices, which was the clear purpose of the conspiracy.

Michell admitted to paying Teleperformance employees for customer information, which was emailed to him. He then used his Facebook page to coordinate the receipt of the fraudulently obtained wireless devices by other co-conspirators. By receiving the stolen customer information, recruiting accomplices, directing the shipment of wireless devices, and managing a number of participants, Michell demonstrated a leadership role in the conspiracy.

Michell admitted to purchasing stolen customer information—including names, telephone numbers, and PINs—and using that information to file false insurance claims in order to receive replacement wireless devices. The term “traffic” means transfer, or otherwise dispose of, to another, or obtain control of with intent to transfer or dispose of. Because Michell’s offense involved the trafficking of unauthorized access devices the district court properly applied the enhancement.

Michell’s final objection was to the loss amount attributed to him at sentencing. The district court is not required to make a precise determination of the loss, and only needs to make a reasonable estimate. When determining a loss amount, a defendant may be held responsible for the reasonably foreseeable acts of his co-conspirators in the furtherance of the conspiracy.

Michell agreed to fully participate in the offense. The district court found the actions of his co-conspirators were reasonably foreseeable. Specifically, the district court found Michell was deeply involved with the conspiracy because he personally obtained stolen customer information, filed false insurance claims, and used his Facebook page to coordinate the activities of the conspiracy. In addition to his own actions, the district court found Michell maintained frequent contact with other co-conspirators, including 820 phone calls between Michell and his cousin Kennol Placil. Michell has not shown any reason why these findings were erroneous. To the contrary, the findings were supported by the record, so the district court did not err when it determined that the entire loss amount was attributable to Michell.

ZALMA OPINION
I thought, after dealing with insurance fraud for more than 50 years I had seen it all. I was wrong. Defrauding a cell phone insurer to get new cell phones is creative and does not include the hazards of armed robbery. The sentence for the multitudinous frauds seems small and insufficient to punish the perpetrator. 

To learn more about this subject, check out Barry's excellent course, "Corporate Liability Insurance Fraud Prevention"

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Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes