It sounded like an old school slip-and-fall scam with a modern-day financial twist.
Neighborhood scouts lined up victims willing to fall in potholes or deliberately trip outside of restaurants, bodegas and dry cleaners. Doctors treated patients for broken limbs, busted knees and internal injuries, including some that were fake. Sometimes they performed unnecessary procedures that drove up the potential value of the personal injury lawsuits that followed.
Lawyers filed those suits in state courts. Behind the scenes, their fees and the doctors’ were “usually paid for” by specialized finance firms, which provide high-interest loans to plaintiffs.
A federal indictment, which laid out those details, portrays a complex scheme, a sort of insurance fraud on steroids that lasted for five years and cost insurers and property owners $ 32 million. A group of five men orchestrated the fraud, recruiting people to stage so-called slip-and-fall accidents, and then organizing the legal and medical appointments that followed, the indictment says. Along the way, the group enlisted doctors, lawyers and finance companies.
Federal prosecutors in Manhattan have charged the five men with carrying out “a widespread mail and wire fraud scheme.” No doctors, lawyers or finance companies have been accused of wrongdoing. It is possible that the finance firms and other players were unwitting partners in the activities.
The indictment offers insight into the unregulated and opaque world of the litigation-finance business.
Such finance firms, many of them backed by hedge funds and private equity companies, typically bankroll defendants’ lawsuits with large cash advances. The goal is to profit on the advances, some of which come with interest rates as high as 100 percent, from the proceeds of any settlements or jury verdicts.
But the level of due diligence performed by the firms before providing the cash advances is unclear. According to the authorities, one of the men who orchestrated the fraud “assisted in procuring the funding” for the plaintiffs’ medical treatment and “fraudulent lawsuits,” contacting the finance firms via email and cellphones. In one instance, he illegally used another person’s identification to “obtain the litigation loans.”
Starting late last year, federal authorities issued subpoenas to doctors, lawyers and several litigation firms, although it is not clear exactly what prompted the investigation. The findings, which are still being sorted through, led to the indictment.
The primary litigation-finance firm involved in the scheme was Fast Trak Legal Funding, according to four people familiar with the indictment who were not authorized to talk about nonpublic aspects of the case.
Fast Trak, which is based in New Jersey, operates throughout the metropolitan New York area and has received financing in the past from Victory Park Capital, a private equity firm in Chicago, and J. Burke Capital, a Manhattan investment firm. Fast Trak was among the entities subpoenaed in the investigation.
A lawyer for Fast Trak, Larry Hutcher, said the firm had done nothing wrong and had potentially lost money through its involvement with the suits connected to the indictment.
“Our client has nothing to hide and is fully cooperating,” Mr. Hutcher said.
“Our client is confident that they have acted properly in all cases and in all instances,” he added. “If there was a fraud, we are a victim of this fraud.”
Several websites that Fast Trak has used to recruit customers have been inoperable for over a week. Mr. Hutcher said that the firm was still collecting on cases it had financed previously, but would not be financing new cases under the Fast Trak name. He said the move was unrelated to the indictment.
Unfettered by regulation in most states, litigation-finance firms have become entangled in past disputes. Some firms are being challenged for making high-interest advances to former professional football players waiting to collect awards in concussion litigation with the N.F.L.
Other firms worked with a cadre of doctors, lawyers and marketers in litigation involving pelvic mesh, paying for procedures for women involved in so-called mass tort cases against medical device manufacturers. Some women have said they were pressured into surgeries to remove pelvic mesh implants so that the lawsuits would be more lucrative.
The alleged slip-and-fall scheme has echoes of that approach. In the indictment, the authorities accuse the group of men of telling people that their personal injury suits would be dropped if they did not get medical treatments or surgeries. As an incentive, the people were “offered a payment after the completed surgery.”
One of the men indicted in the case is Peter Kalkanis, a 70-year-old former chiropractor who lost his license to practice in 2013 after a misdemeanor conviction for larceny.
In the indictment, prosecutors said Mr. Kalkanis, who is charged with conspiracy, mail fraud and wire fraud, was the scheme’s “organizer and leader.” He is accused of working with four younger men who acted as “scouts,” recruiting plaintiffs and helping to transport them to appointments with doctors.
The group also coached the plaintiffs on how to fake their injuries convincingly, according to prosecutors. Mr. Kalkanis, the prosecutors contend, also connected the plaintiffs with the litigation-finance firms.
Slip-and-fall cases are common in large cities, and the business of litigating such claims has a long history of abuse, with insurance companies spending large sums of money to detect fraud. But federal authorities say that the conduct they uncovered in this instance was more brazen than typical personal injury schemes.
In an unusual move, prosecutors identified eight doctors and lawyers by name in a court document, and specified that the defendants in the case should not contact them without their counsel present. It is unclear why the authorities attached the condition to the defendants’ bail; the doctors and lawyers in question are not accused of wrongdoing.
The extent of the alleged fraud and the network of players involved may not yet be fully known. Court filings and interviews with three people familiar with the indictment suggest that others connected to the alleged scheme are already cooperating with prosecutors and that hundreds of personal injury lawsuits could be at issue.
Defense lawyers who represent insurance companies have begun scouring their files in search of cases that may be connected to the alleged scheme. Christopher Fusco, a lawyer whose firm mainly represents insurers, said he found at least eight cases that seem suspicious because of the lawyers and doctors involved.
“While I can’t comment on specific litigation, if fraud is suspected in a case, we may move for a stay while the criminal allegations play themselves out,” Mr. Fusco said.
James Monroe, another lawyer who represents plaintiffs, said his firm was trying to get out of a number of cases it had recently taken on from one of the lawyers identified by prosecutors.
Prosecutors have not identified specific lawsuits as bogus. But a review of personal injury cases filed by two of the lawyers named by prosecutors — Marc Elefant and George Constantine — include some with plaintiffs who have checkered backgrounds.
In one case, a woman testified in a deposition that she had previously been convicted of driving the getaway car in an armed robbery. In another, the plaintiff said he had served time in state prison for murder.
Michael Bachner, a lawyer for Mr. Elefant, said his client “provided legal services only for clients he appropriately believed under all the circumstances were injured in accidents.”
Mr. Constantine, who mainly practices in State Supreme Court in Queens and has filed dozens of slip-and-fall suits in New York state courts, did not return repeated requests for comment.
Edward Sapone, a lawyer for Mr. Kalkanis, said his client “trusted that attorneys and funding companies carefully vetted the lawsuits.” Mr. Kalkanis, he added, “trusted that surgeons reviewed objective tests and looked inside injured bodies.”
The authorities have provided the defendants with emails, boxes of documents and several consensually recorded phone calls, presumably made by cooperating witnesses, said two of the people familiar with the matter who were not authorized to speak about information that has not been made public.
As prosecutors move ahead with their case, some of those cited in the court filings continue to go about their business. On Tuesday, Mr. Constantine was in a Queens courtroom. He was arguing against an insurance company in a slip-and-fall lawsuit.