James Graf was convicted in November 2005 on federal charges in California for purporting to provide medical coverage for more than 20,000 people across the U.S., but left $20 million in unpaid claims when the company shut down (See Operator of Bogus Health Insurance Provider Convicted of Fraud ).
He was convicted of one count of conspiracy, five counts of mail fraud, 10 counts of misappropriation in connection with a health care benefit program, six counts of money laundering, and one count of obstruction of justice.
Graf had falsely claimed that the health plans were insured by such licensed insurers as Golden Rule Insurance Co. and Sun Life of Canada, according to the charges.
Insurance commissioners in Florida, Colorado, Texas, Oklahoma, and Nevada ordered Employers Mutual to stop transacting insurance business in their states, but Graf contended that the plans were covered by the Employee Retirement Income Security Act (ERISA), and were not subject to state approval.
The 25-year prison sentence was far less than the maximum sentence of 200 years.
Karl Hanson, also of Employers Mutual, pleaded guilty of misappropriation in connection with a health care benefit program and subscription to a false tax return and is scheduled to be sentenced later this month.
Employers Mutual LLC is unrelated to Employers Mutual Insurance Company of Des Moines, Iowa.