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Probe of state-run insurer may grow

State Fund has asked the CHP to help look into possible misuse of public funds.

June 06, 2007|Marc Lifsher | Times Staff Writer

SACRAMENTO — The state's investigation into alleged corruption at the government-run State Compensation Insurance Fund may be widening.

On Tuesday, the California Highway Patrol confirmed that its investigators have been asked to join the inquiry into possible misuse of public funds at the $6-billion-a-year workers' compensation insurance company.

The investigation comes at the request of fund Chairwoman Jeanne Cain, CHP spokesman Tom Marshall said. Cain specifically asked the highway patrol to look into "possible money being unaccounted for," Marshall said.

The inquiry parallels a separate probe of the insurer by the California Department of Insurance into alleged financial self-dealing that department officials have suggested could run as high as $1 billion.

The growing scandal at the fund, which insures nearly 230,000 California employers, has already spurred the sudden resignation of the company's president and vice president and the forced demotion of its top lawyer.

Meanwhile, lawyers in Los Angeles filed a lawsuit May 22 seeking damages from the insurer -- known as State Fund -- on behalf of all employers who buy its workers' compensation policies.

Nanci Clarence, a San Francisco attorney hired by Cain to conduct an internal inquiry, said that "the board has directed us to not stop until all the stones are unturned." She stressed that her team and State Fund's new management were "working cooperatively with all the state authorities."

Both the Highway Patrol and the Insurance Department confirmed that they would share their findings with the California attorney general's office, which could be involved in any possible criminal prosecution.

David Kravets, a spokesman for Atty. Gen. Jerry Brown, said his office expected to review the case in 30 to 45 days.

State Fund's legal problems are not confined to investigations by law enforcement agencies. In the Los Angeles County lawsuit, Acro Constructors Inc., a Burbank development contractor, contends that State Fund's top managers misappropriated funds "that belonged to policyholders."

The suit, which seeks certification as a class action, accuses State Fund officials of self-dealing and alleges conflicts of interest. It asks for $25 million in compensatory damages and $50 million in punitive damages.

Cain, the State Fund board chairwoman, declined to comment on the lawsuit.

The suit contends that former President James Tudor, Vice President Renee Koren and board attorney Charles Savage improperly authorized payments to board members who ran companies that did business with State Fund.

The companies combined State Fund policyholders into groups of similar employers so they could qualify for special discounts on their premiums, the suit says.

Gary S. Soter, a Sherman Oaks attorney representing Acro, said his client and other California employers had suffered damages by "being deprived premium credits and dividends that otherwise would have been given them" if money had not been diverted by State Fund executives.

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