SACRAMENTO — Two state law enforcement agencies and the San Francisco County district attorney's office announced Wednesday that they were forming a task force to investigate a state-run insurance company.
The criminal investigation by the California Highway Patrol, the California Department of Insurance and the district attorney is focusing on allegations of potential misconduct by former top officials at the State Compensation Insurance Fund, commonly known as the State Fund.
The CHP's decision to join forces with the Department of Insurance and San Francisco prosecutors "sends a powerful message that we continue to move full speed ahead with our examination of the State Fund," said California Insurance Commissioner Steve Poizner.
The state-backed insurer, based in San Francisco, provides workers' compensation coverage to about 220,000 California employers.
The Highway Patrol said it created the task force in response to information it received from the insurer, gathered as part of an external audit that led to the forced retirement last year of State Fund's president, James Tudor, and a vice president, Renee Koren. Neither Tudor nor Koren could be reached for comment.
The audit uncovered financial transactions involving the sale of discounted policies through outside associations that had links to former board members, according to testimony provided to the state Senate Banking, Finance and Insurance Committee in March.
The total in misappropriated funds could run as high as $1 billion, the Department of Insurance has said.
State Fund is the biggest workers' compensation insurance company in California, with 32% of the market and $3.6 billion in premiums collected in 2006.
"Since we contacted the CHP in May and asked them to pick up where our review team left off, they have exhibited great leadership -- as evidenced by the formation of the task force announced today," said Jeanne Cain, an official of the California Chamber of Commerce who was appointed by Gov. Arnold Schwarzenegger to chair State Fund's board of directors.
A spokeswoman for the district attorney's office said the work of the task force could take "up to a year."
In the meantime, Poizner said Insurance Department investigators also were conducting a separate "top-down audit" of State Fund operations and expected to release their findings in September or October.
The expanding investigation has also spawned a lawsuit in Los Angeles County Superior Court.
Acro Constructors Inc., a Burbank development contractor, contends that State Fund's managers misappropriated money that "belonged to policyholders." State Fund declined to respond to inquiries pending an initial court hearing in the case next week.
The highway patrol would not comment on any specifics of its investigation. However, it said it had set up a confidential toll-free tip line for individuals to report information regarding State Fund. The number is (877) 620-2345.