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Inquiry into State Compensation Insurance Fund ends

A four-year criminal investigation into State Fund, a state-run workers' comp insurer, closes with no charges filed.

March 03, 2011|By Marc Lifsher, Los Angeles Times

Reporting from Sacramento — A four-year criminal investigation into alleged conflicts of interest, self-dealing and misuse of hundreds of millions of dollars at a state-run insurance company has closed without any charges filed.

The State Compensation Insurance Fund disclosed the news in an internal staff memo, released Wednesday.

Tom Rowe, State Fund's president, said he was told officially that a task force made up of the California Highway Patrol, the state Department of Insurance and the San Francisco district attorney's office "has completed its investigation of former State Fund employees and directors."

The district attorney "will not be filing any criminal charges," Rowe said.

Erica Derryck, a spokeswoman for Dist. Atty. George Gascon, confirmed that the investigation of the San Francisco-based insurer had ended. The Los Angeles Times reported in December that the investigation appeared to be petering out and that the legal statute of limitations for filing charges could be expiring.

The investigation began in March 2007 when State Fund's board of directors fired then-President James Tudor and Vice President Renee Koren after an internal review. The review identified questionable financial practices involving the sale of discounted policies through outside associations with links to certain board members.

A Department of Insurance audit, released in December 2007, found potential conflicts of interest with two board members whose private firms collected at least $265 million over 10 years from State Fund for administering group policy programs. The two had resigned under pressure from the governor's office six months earlier.

Confidential board minutes, cited by the audit, concluded that the two board members did not have conflicts but noted that "the fact that board members might have gained monetarily from the fund's decisions creates the appearance of a conflict."

The investigation served as a catalyst for changes at the $21-billion State Fund, including requirements for holding open meetings and making the insurer subject to the California Public Records Act.

The company is an important part of California's economy because it provides workers' compensation insurance for many employers that aren't served by private insurance companies. Last year, State Fund wrote policies totaling an estimated $1.1 billion in premiums for about 150,000 employers.

"The end of this investigation marks another important step in closing this chapter in our history," Rowe told employees in the State Fund internal memo. "[The] most recent operational review has confirmed that State Fund is a much stronger and more transparent organization today."

marc.lifsher@latimes.com

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