Administrator Of Student Health Insurance For Virginia Tech Sentenced
GM-Southwest, Former CEO, Previously Admitted To Overstating Amount Of Claims Paid By More Than $1 Million
ABINGDON, VIRGINIA – GM-Southwest Inc., and the company’s CEO and former owner, have been sentenced in the United States District Court for the Western District of Virginia in Abingdon after previously pleading guilty to charges of racketeering and money laundering.
Last year, John Paul Gutschlag, 73, of Aubrey, Texas pled guilty to one count of conspiracy to violate the Racketeering Act and two counts of money laundering by engaging in monetary transactions involving property derived from wire and mail fraud. In addition, GM-Southwest, through its corporate counsel, pled guilty to the same three charges. Yesterday in District Court, Gutschlag was sentenced to 18 months of federal incarceration. The defendant was also ordered to pay $1.2 million in restitution.
“The students and parents of thousands of Virginia Tech students were bilked out of more than $1 million due to the criminal actions of Mr. Gutschlag and GM-Southwest,” United States Attorney Timothy J. Heaphy said today. “This conspiracy caused significant harm to its victims. In a time where health care costs are rising for every American, the United States Attorney’s Office will continue to do everything possible to identify and prosecute waste, fraud and abuse in the health care delivery system.”
“John Paul Gutschlag and GM-Southwest’s conspiracy treated the Virginia Tech community as a pawn in a scheme motivated by pure greed. Through false and fraudulent business practices, Gutschlag not only personally enriched himself, but victimized the Virginia Tech community and cheated them out of more than $1 million in the process, ” said Thomas J. Kelly, Special Agent in Charge of the Internal Revenue Service-Criminal Investigation, Washington, D.C. Field Office. “IRS-CI is committed to working closely with the US Attorney’s Office to investigate corporate fraud and to hold corporations and executives accountable for complying with the law.”
According to evidence presented at previous hearings by First Assistant United States Attorney Anthony Giorno, GM-Southwest was in the business of collecting health insurance premiums from students and universities, paying claims and providing reports related to the premium collection and claims payment both to the university and the carriers. The carriers, in turn, paid GM-Southwest a set commission or fee, typically a percentage of the gross premium collected. From August 2003 through the end of the 2010-2011 school year, GM-Southwest, under the direction of Gutschlag, provided student health insurance for Virginia Tech’s undergraduate and graduate students.
Previously, the defendants admitted that beginning in 2005, Gutschlag, and others, devised a scheme to defraud colleges and universities by providing false and fraudulent claims reports and other misrepresentations designed to increase the income of GM-Southwest and to personally enrich Gutschlag. They did this by devising and utilizing a “claims modifier” to alter the claims numbers to produce an inflated dollar amount which overstated the claims paid and loss ratios, causing students andVirginia Tech to pay significantly higher premium costs.
Gutschlag and GM-Southwest admitted to overstating the amount of claims paid on behalf of Virginia Tech by over $1 million from 2003-2004 through the 2009-2010 academic years. The plea agreement provides for restitution to Virginia Tech and the students in the amount of $1.2 million and forfeiture of an additional $1.2 million to the government. The defendants agreed that the restitution figure agreed to by the government would not prevent Virginia Tech or the students from seeking additional restitution through the civil courts.
In a related matter, in July 2013, James Lane, of Botetourt, Va., reached an agreement with the United States for his role in the fraud. He has paid $250,000 to Virginia Tech as restitution for his conduct. This is in addition to the restitution to be paid the Gutschlag and GMS. Lane also pled guilty to one-count of filing a false tax return for tax year 2008 and one count of filing a false tax return for tax year 2009.
In addition, Carolyn Beck, Gutschlag Sr.’s administrative assistant, has previously pled guilty to one count of conspiracy to commit wire fraud, mail fraud and money laundering. Beck had access to the false premiums and claims data on the GM-Southwest computer system at the company’s office in Texas. At Gutschlag’s direction, she provided false claims reports to Lane, who in turn provided the false reports to Virginia Tech
The investigation of the case was conducted by the Bristol Virginia Office of the Internal Revenue Service Criminal Investigation Assistant United States Attorneys Anthony Giorno and Randy Ramseyer prosecuted the case for the United States.