Owners of Southland sober living facilities arrested in massive fraud bust
News: 2016 Press Release
"Bathum and Wallace's alleged conspiracy victimized hundreds of people addicted to drugs and alcohol by keeping them in a never-ending cycle of treatment, addiction, and fraud—all the while lining their pockets with millions of dollars from allegedly fraudulent insurance claims," said Insurance Commissioner Dave Jones.
According to investigators, Bathum, the owner and CEO of Community Recovery of Los Angeles (CRLA) and Wallace, the CFO, are accused of luring vulnerable people addicted to drugs and alcohol to CRLA with a variety of treatment marketing schemes.
The Department of Insurance's investigation revealed Bathum and Wallace conspired to steal patient identities and buy health insurance policies for patients without their knowledge. After completing treatment, Bathum continued to bill insurance companies for treatment services.
Bathum and Wallace billed health insurance companies more than $176 million in fraudulent claims. The insurers, including Anthem Blue Cross, Blue Shield, Cigna, Health Net and Humana paid approximately $44 million in total before discovering the suspected fraud and stopping claim payments to CRLA.
Bathum and Wallace are charged with multiple counts on the following felonies:
- Identity theft for submitting fraudulent health insurance applications without patients' knowledge.
- Five counts of billing fraud for submitting claims for services not provided and duplicate billings.
- Five counts of grand theft by false representation for representing CRLA as a residential treatment facility, which it is not licensed to provide.
- Five counts of grand theft by false representation to insurers for filing fraudulent health insurance policy applications.
Additional charges include enhancements for losses greater than $500,000 and for losses greater than $3.2 million.
"This is likely the first wave of indictments and charges in an ongoing investigation into one of the largest health insurance fraud cases in California," added Jones.
If convicted on all counts, Bathum and Wallace face more than 35 years in prison. Bail was requested at $2 million. Both are likely to be arraigned on November 14, 2016.
This case was investigated by the Department of Insurance and is being prosecuted by Los Angeles District Attorney Jackie Lacey. The Department of Insurance was assisted in the arrests and search warrants by the Los Angeles County District Attorney's Bureau of Investigations; the Los Angeles County Sheriff's Department; the Orange County District Attorney's Bureau of Investigation; and the Department of Health Care Services accompanied detectives to ensure any patients in CRLA facilities are transferred to licensed treatment locations.
- Wallace was arrested at her home. Wallace arrest photo.
- Bathum was arrested at his residence.
- Bathum Felony Complaint
The California Department of Insurance, established in 1868, is the largest consumer protection agency in California. Insurers collect $310 billion in premiums annually in California. Since 2011 the California Department of Insurance received more than 1,000,000 calls from consumers and helped recover over $469 million in claims and premiums. Please visit the Department of Insurance website at www.insurance.ca.gov. Non-media inquiries should be directed to the Consumer Hotline at 800.927.4357. Telecommunications Devices for the Deaf (TDD), please dial 800.482.4833.