Allstate Insurance Co. wants to stop Hudson Valley resident Jeffrey Lereah from using bankruptcy to get out of paying a $3.7 million debt for his part in a massive insurance fraud scheme.
Allstate sued Lereah, of Rockland County, on Nov. 5 in federal bankruptcy court in White Plains arguing that he is not entitled to discharge of a debt incurred by fraud.
The debt arises, Allstate argues, “out of his admitted participation in the intentional, fraudulent and comprehensive insurance fraud scheme.”
Lereah is one of 52 people charged with running a criminal enterprise that defrauded insurance companies of $279 million under New York’s no-fault auto insurance law.
Participants paid doctors to use their licenses to set up medical clinics that provided bogus medical treatments, and they paid kickbacks to runners who recruited automobile accident victims who received unnecessary or excessive treatments.
Insurance payments were then laundered through shell companies and check-cashing services and returned as cash to the criminal organization.
“While it lasted,” the FBI said in a press release when the case was announced in 2012, it “was obscenely profitable.”
Lereah pleaded guilty in 2016 to criminal charges of health care fraud and money laundering.
He operated Novacare Medical PC and McGuire Medical PC. He recruited medical doctors to serve as paper owners of the corporations, paid kickbacks for patient referrals, arranged for unnecessary patient referrals to other clinics in exchange for kickbacks and laundered money to conceal detection of the scheme, according to a transcript of his sentencing.
He was placed on probation for two years, ordered to forfeit nearly $1 million and to make restitution to his victims.
Allstate had won a default judgment, also in 2016, when Lereah failed to defend himself against a civil complaint filed in U.S. District Court, Brooklyn. The judge found him liable on charges of racketeering, fraud and unjust enrichment.
The actual damages were about $1.2 million and the award was tripled to $3.7 million under the racketeering law.
This past July, Lereah, of Robin Hood Road in Suffern, petitioned for Chapter 13 bankruptcy protection. He declared $704,789 in assets and $813,158 in liabilities. He had been making about $88,000 a year selling used cars.
Last month, he filed a motion to void the Allstate default judgment.
He claims his house is worth $700,000. But he still owes $752,199 on the mortgage and the property is encumbered by the Allstate lien and two small liens. Therefore, his equity is $0.
Yet, he is entitled to a homestead exemption of $170,825, according to the motion. The liens impair that exemption and should be voided.
A hearing is scheduled in December.
Under bankruptcy law, Allstate argues in an adversary proceeding, “Lereah is not entitled to the discharge of a debt incurred by false pretenses, a false representation or actual fraud.”
Lereah’s bankruptcy attorney, Allen A. Kolber, did not respond to an email message requesting his client’s side of the story.