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Judge orders drug rehab co-conspirator to state corrections’ custody

News: 2018 Press Release

For Release: April 17, 2018
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Judge orders drug rehab co-conspirator to state corrections’ custody
Former partner and CFO of Community Recovery of Los Angeles begins serving 11-year sentence

LOS ANGELES, Calif. — Kirsten Wallace, 47, of Los Angeles, was formally transferred from the custody of the Los Angeles County Jail to the State Department of Corrections to begin serving 11 years in state prison for her role in a multi-million dollar insurance fraud scam involving substance abuse treatment.

Originally arrested in November 2016 with her partner, Christopher Bathum, the CEO of Community Recovery of Los Angeles (CRLA), the California Department of Insurance investigation found Wallace was intimately involved in executing the complex fraud scheme, as the organization's CFO.

"Wallace and Bathum sold victims and their families promises of an addiction-free life, but the only people who benefited from those empty promises were Wallace and Bathum who scammed insurers for millions for substance abuse treatment never provided and left behind a trail of broken promises and broken lives," said Insurance Commissioner Dave Jones.   

Wallace pleaded guilty last month to 46 felony counts of insurance fraud, grand theft, identify theft and money laundering in a wide-reaching health insurance fraud case that victimized dozens of people who sought substance abuse treatment only to find their identities stolen and health insurance policies purchased without their knowledge. The policies were used to double bill and invoice for treatment and services that never occurred, which resulted in several insurers paying more than $44 million in fraudulent insurance claims before authorities shut down the illegal operation.

After receiving tips from multiple sources, including insurers, clients and former employees, the California Department of Insurance launched an investigation into CRLA's business practices in 2014. Evidence also revealed Bathum represented to clients and their families that CRLA was a fully licensed residential drug treatment facility, which it was not.

Clients were lured to CRLA through online ads, from the streets and even from out of state. As CFO, evidence revealed that Wallace was deeply involved in the scheme and control of client information, billing codes and billing charts provided to clinic staff, and cashing checks from insurers that were made payable to clients and putting the money directly into CRLA accounts.

"I congratulate District Attorney Jackie Lacey and her team and our Department of Insurance detectives on a job well done. Their hard work paid off today, as Wallace begins serving her sentence," Jones continued.

The Department of Insurance worked with the Los Angeles District Attorney's Office, which prosecuted Wallace. Bathum's trial on dozens of similar counts of insurance fraud, identity theft, and money laundering is scheduled to start January 3, 2019. Bathum is also scheduled for sentencing on sexual assault convictions, related to the same case, on June 18, 2018.

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Media Note:

Led by Insurance Commissioner Ricardo Lara, the California Department of Insurance is the consumer protection agency for the nation's largest insurance marketplace and safeguards all of the state’s consumers by fairly regulating the insurance industry. Under the Commissioner’s direction, the Department uses its authority to protect Californians from insurance rates that are excessive, inadequate, or unfairly discriminatory, oversee insurer solvency to pay claims, set standards for agents and broker licensing, perform market conduct reviews of insurance companies, resolve consumer complaints, and investigate and prosecute insurance fraud. Consumers are urged to call 1-800-927-4357 with any questions or contact us at via webform or online chat. Non-media inquiries should be directed to the Consumer Hotline at 800-927-4357. Teletypewriter (TTY), please dial 800-482-4833.

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