The Brighton Beach Swindle

It was a clear afternoon last April when Mikhaylo Goldenberg entered a Citibank branch at 250 Broadway. Slim and unobtrusive, he wore a suit and moved in an unhurried way. He had the tattoo of a ring around one finger. In a voice ragged from smoking unfiltered cigarettes, he told a clerk that he wanted to withdraw $34,000 from his account. Goldenberg had opened the account less than a month earlier under the name of a woman he identified as his girlfriend, Diane Montella. He had presented a signed and notarized form, in which she’d given him power of attorney over her finances. A known Citibank customer, a Russian attorney, had accompanied him and vouched for his identity. Within 21 days, he had deposited $67,598.71 in checks made out to Montella, a Pennsylvania doctor. They had all come from Medicare, the federal health-insurance program for the elderly, as reimbursement for services rendered. They had been sent to Montella’s medical-X-ray company, Seliko International Group, in Brighton Beach, Brooklyn, on Avenue U.

As the clerk processed Goldenberg’s request, bank employees noticed that the man in front of them, cool and sympathetic as he seemed, resembled the John Doe on a flyer circulated by Citibank security. It featured the passport photo of a Russian émigré with hooded eyes and sunken cheeks. His real name was unknown, but he used four aliases. The Office of the Inspector General at the federal Health and Human Services agency suspected him of perpetrating $27 million worth of health-care fraud and had been seeking him for more than a year.

In January, John Doe had walked away from $33,000 in a Charles Schwab account that he’d opened just six days earlier using Medicare checks made out to a radiologist named Karin Eckertt Shinn. After the Social Security number he supplied proved to be false, a manager from the brokerage house phoned him up to ask a few questions: Did he have a medical license number? Did he know what the acronym AMA stood for? John Doe quickly hung up and vanished into the tight-lipped world of criminal émigrés.

Since then, John Doe had been trying to collect over half a million dollars deposited in various bank accounts around the city, as HHS agents, police officers, and bank officials watched and waited. John Ryan, a New York City police detective, was canvassing the Russian-émigré community of Brighton Beach, Brooklyn, looking for a suspect who used the alias Yakov Dubinsky. As it turned out, the telephone number John Doe gave to Charles Schwab rang at the Brighton Beach home of a Yakov Dubinsky. But it was not the right man. The suspect had melted into the bustle of storefront culture there.

While his tracks have led investigators from a Brighton Beach Laundromat to a Florida health clinic and may yet dead-end in the Siberian woods, John Doe was finally caught in Manhattan, just blocks from the HHS regional office at 26 Federal Plaza. The Citibank clerk had signaled a security officer, who in turn called Detective Ryan. Ryan then radioed a police officer, who made it to the bank and cuffed the suspect, who was waiting for the cash.

John Doe turned out to be 52-year-old Yuri Bizayko, a Russian émigré with a twelve-year history of counterfeiting and forgery in the former Soviet Union. He was charged with grand larceny (and marijuana possession) and pleaded guilty. But he refused to answer questions and cooperate with investigators (and, through his attorney, declined to speak to New York). On December 18, he was sentenced in federal court to two and a half years in prison, to be served concurrently with a two-to-four year sentence imposed by a state court. But his conviction and recent sentencing have not settled the bigger question of who Bizayko really is – and whether he was giving orders or merely following them.

On April 2, before his aliases were peeled away, Bizayko gave a statement to detectives in which he claimed to be Goldenberg. He said that he had become acquainted with a Russian named Volodya, who gave him Medicare checks and directed him to open bank accounts in exchange for a cut of the money. He said he had intended to take the $34,000 from the Citibank account and use it to gamble in Atlantic City.

Bruno Varano, assistant regional inspector general for HHS, is convinced that Bizayko is a foot soldier in a confederation of émigré criminals who are being bankrolled by Russian businessmen. “These are individual Russian groups who are organizing in such a way that they are able to perpetrate health-care fraud that alone they would not have the finances or muscle to pull over,” says Varano, who is trained as an accountant and carries a 9-mm. Sig Sauer. “They are known to be very physical, with a lot of direct intimidation that makes the Wild West look Girl Scoutish.” This theory of grand conspiracy has always been attractive to law enforcement. The reality, however, may be even more ominous, a case of not organized but disorganized crime. In this scenario, Bizayko is little more than a random felon, one who learned that Medicare was an easy mark and who was able, almost effortlessly, to steal millions from the American government.

Bizayko’s story and those of countless other scam artists will be brought before the United States Senate when it hears testimony, now scheduled for January 29, about the growing cost of health-care fraud. According to a 1997 General Accounting Office report, fraud eats up anywhere from 3 to 10 percent of America’s $1 trillion in health-care spending – or as much as $100 billion (a staggering amount of criminal activity when you consider that annual narcotics sales in the U.S. are estimated to be only $65 billion). And it could be even higher: A new HHS study pegs health-care fraud at 14 percent.

“There are people who say if we can solve the health-care-fraud problem,” says Lewis Schiliro, FBI special agent in charge of New York City’s criminal division, “we can pay off the national debt.”

To law-enforcement and government officials, Bizayko represents the possibility that larger and more sophisticated crime syndicates are getting involved in health-care fraud. “In the eighties, it was garden-variety doctors and medical-service providers inflating bills,” says Bill Mahon, executive director of the National Health Care Anti-Fraud Association, which provides training and information to law enforcement and private and government insurers. “Now the most sinister development is the move of professional criminal entrepreneurs onto the health-care-fraud landscape.”

By the traditional standards of organized crime, however, health-care fraud is a paid vacation. When Medicare was first designed, the government wanted to woo doctors to join the program, so there was little red tape. To become a Medicare provider, until recently, all you really needed was a Social Security number, a computer to generate bogus bills, and a post-office box to receive the checks. Safeguards have been instituted, particularly in the last year, but many observers don’t believe they’re sufficient. “If you want to steal $1 million, there’s probably no easier way to do it,” says Dr. Malcolm K. Sparrow, a lecturer at Harvard’s John F. Kennedy School of Government and author of License to Steal: Why Fraud Plagues America’s Health Care System. In South Florida, drug traffickers have diversified into health-care fraud, finding it safe and potentially more lucrative than their usual line of work. They’ve brought violence with them – one Miami physician who resisted recruitment efforts had his Acura firebombed in his driveway.

In 1995, the federal government launched an all-out war against health-care fraud. Under the federal initiative Operation Restore Trust, an array of special task forces within the Justice Department, the FBI, and HHS, as well as local police forces and district attorneys, investigates everything from itinerant crooks to pharmaceutical giants. A total of $1.2 billion in fraudulent claims was recovered by the government last year. Most of that has come from corporate settlements. Using information provided by whistle-blowers, the government has prosecuted fraud in high-prestige corporations like SmithKline Beecham laboratories. But criminals like Bizayko make financial recoveries all but impossible.

“You couldn’t find a system more conducive to keeping your fraud inconspicuous,” says Mahon. “You have the whole population to exploit. You have the whole gamut of treatments to say you provided. The classic M.O., if you’re smart enough, is to spread the targets and bill 60 payers at a time. It doesn’t hurt,” adds Mahon, “to be a sophisticated criminal.”

By means still unexplained, Bizayko had no problem getting his hands on doctors’ Medicare-provider numbers and the Social Security numbers of patients – investigators presume that he must have had informants inside insurance companies. He created bogus medical companies, such as Best Health Surgical Supplies and G&Y Orthopedic Shoes, then generated phony bills and submitted them to Medicare. He also changed the mailing addresses linked to the provider numbers, redirecting the Medicare checks to P.O. boxes he rented out at mail-drop companies throughout Brighton Beach. Then, using different aliases, he opened up bank accounts to cash the checks.

Diane Montella, his supposed girlfriend, is an internist who runs a Florida health clinic for uninsured patients. Not only is Montella not Bizayko’s girlfriend; she had never even heard of him before he was busted. Her Medicare-provider number had not been used since 1993, when she worked as a resident at a Pennsylvania hospital. Bizayko picked up her inactive number – how is not clear – and used it to bill Medicare for $688,000 in magnetic-resonance-imaging services.

“A Social Security card had been forged in my name, a Russian passport had been forged, a power of attorney over my financial accounts had been obtained. An account in New York City had been opened in my name, and checks from Medicare were deposited,” says a still-stunned Montella. “Feeling violated is such a cliché term, but boy, did I.”

By the time Bizayko walked into Citibank on April 2, investigators believed he was involved in at least twenty bogus companies that had billed the government for $27.3 million. He had managed to collect $1.5 million of this.

When HHS special agent Jane F., a tough, diminutive 24-year-old, was first assigned to the Bizayko case in 1996, she had little to go on. There were complaints from patients whose insurance companies had been billed for services they’d never received, in states they’d never been to. Reimbursement had been mailed to improbable locations – for example, $640,000 destined for a Neptune Avenue Laundromat that also offers shoe repair, video games, and 120 private mailboxes that can be rented for $10 a month.

The same day Jane and her colleagues began to stake out a mailbox connected to Bizayko at various locations, the suspect stopped showing up. Instead, he sent a car service at odd times to pick up the checks. Brighton Beach, says Jane, turned out to be a sinkhole: “From an investigative point of view, how many mailboxes can we sit on?”

So she began to track the checks instead. With the help of the New York State Banking Commission, she collected the identification John Doe had used to open up the multiple bank accounts. “When I lined them all up,” she says, recalling a eureka moment, “they were all the same person.” At least his face, if not his name, had come into focus.

It took her more than a year to track Bizayko, and when he was finally arrested near her office, she happened to be in Brighton Beach questioning a doctor in an effort to find him. Even with Bizayko behind bars, the search for his associates continues. Investigators, however, are having trouble getting information from an insulated community with no incentive to cooperate.

On a recent winter day, she and her boss, Varano, drove out to Brighton Beach in an unmarked government car with a siren under the dashboard and a two-way radio crackling. With the afternoon sun shining over the Verrazano-Narrows Bridge, they talked about the girlfriend Bizayko left behind.

“The girlfriend was bawling her eyes out. She’s full of crap, a typical Mafia wife,” Jane told Varano. “Last Friday, we interviewed her again: ‘Did he leave any personal belongings?’ Yesterday, we went over there and everything had been cleared out.”

“Sanitized,” Varano remarked dryly.

Almost, anyway. Jane described how she lifted an ink blotter on the desk of the emptied apartment and found a fake I.D. under it, bearing the name of William Levy, a Brooklyn doctor whose identity Bizayko had assumed. She recalled the moment of discovery: “I could see the girlfriend’s face. It was funny.”

To these investigators, the Bizayko case confirms a marked shift in Medicare-related crime. “People ask, ‘Why do you need guns to protect against health-care fraud?’ I say, ‘Are you kidding me? I got a source who was a former Soviet-intelligence agent,’” says Varano. “This kind of crime is no longer what people think it is. It has metamorphosed into a criminal crime.”

According to numerous émigrés and law-enforcement sources, the Brighton Beach medical community operates as a web of referrals, kickbacks, and bogus billing. Medical storefronts dot the Brighton Beach horizon and seem to gain business overnight. “It’s often businessmen who open these places and hire doctors at hourly rates,” says Jay Shapiro, Kings County deputy district attorney and head of the rackets division. When they make enough money from one storefront, they close it down and open another.

One Russian businessman with investments in a medical-equipment company, who declined to be identified, says that drivers routinely use vans to round up patients at senior-citizen homes and receive a bounty of $40 a head to deliver them to clinics. The patients are then given phony diagnoses, and Medicare is billed for unnecessary treatments that may not even be performed. “The U.S. is a huge market, and you have to find real merchandise,” the businessman explains. Patients are the merchandise for a medical community that makes its own rules: “A lot of people think they’re in a legal business. They’re not.”

When it comes to durable medical equipment, for example, the Brighton Beach community is a hotbed of fraud, according to Timothy Delaney, FBI supervisory special agent in charge of the New York City health-care-fraud squad. Normally, doctors must write prescriptions known as certificates of medical necessity CMNs for equipment like wheelchairs and prostheses. Patients then present these certificates to companies that provide the items, which in turn bill Medicare. Last year, the FBI busted up a Brighton Beach scheme in which Russian cons gave out air conditioners, TVs, blankets, and pillows to elderly émigrés who in turn handed over their Medicare numbers and agreed to visit certain doctors, who then wrote CMNs for them. (During the winter, another group was bartering with angora-wool long underwear.) The FBI got twenty convictions, including six doctors.

The largest health-care fraud in American history, known as the “rolling labs” scheme, was committed in California in the mid-eighties by two Russian-immigrant brothers, David and Michael Smushkevich. They teamed up with a Yugoslavian physician, invented more than 500 bogus laboratories, and stole tens of thousands of patient identities. They did this in part by offering free physical examinations to health-club members, requesting their insurance information as background, and then stealing their identities. Over the course of a decade, they billed the state of California for over $1 billion, collecting $50 million before they were caught. The fraudulent billing spiked health-insurance premiums for consumers throughout California.

Though Michael Smushkevich was sentenced to 22 years in prison (his brother got only 41 months), the money was never recovered. Some was sent to Tijuana; some was transferred offshore. “No one talked at that point of Russian organized crime, but the Smushkevich case was very much a forerunner,” says Mahon. “Today, you need to look no farther than Moscow itself to understand how that phenomenon is transferable.”

Even by the standards of Brighton Beach, where Medicare-provider numbers are traded like baseball cards, the audacity of Bizayko’s scheme – as well as his apparent willingness to victimize his own fellow émigrés – set him apart. In December 1995, he (or perhaps his associates) placed a small advertisement in Novoye Russkoye Slovo, the largest Russian-language newspaper in the U.S., looking to purchase a medical-equipment company. The ad was answered by the wife of an Azerbaijani doctor, who ran a small storefront practice in Brighton Beach, as well as a company we’ll call Star Medical Equipment. Star had been a way for the doctor, who asked to be identified only as A.W., to piece together a living during seven years of medical training here. Bizayko set up a meeting with the doctor’s wife, L.W., a statuesque woman who works in a beauty parlor.

They met in her husband’s office, a dank box of a clinic with an almost choking smell of mildew. Bizayko identified himself as Arkadi Osvoski, using a driver’s license, the counterfeiter’s equivalent of a business card. She recalls his saying, “I would like to buy medical equipment or be a partner.” She wanted nothing more than to get rid of the business. At that point, Star Medical Equipment consisted of a few boxes of back braces and neck pillows, $1,000 in a checking account, and a history of frustrated ambitions that the couple hoped to erase with their low-budget medical practice.

Osvoski seemed legitimate. He had a notable smoker’s voice, she said, but “he was elegant, clean-shaven.” He arrived in a suit and long black coat. He said he would need to show the company papers to his lawyer, who could then evaluate the merits of the purchase. L.W. gave him photocopies. Several days later, Bizayko called to inform L.W. that his lawyer advised against the investment. Dutifully, he returned the papers. “He left. I forget it. He never call again,” says L.W.

Almost a full year later, she and her husband were preparing their taxes and realized they had not received a bank statement for Star in months. They called the post office and, according to L.W., were told, “‘Your son came over and asked to change the address of your company.’ Our son the real one hates this business. In the moment we realize this, I start to call FBI.” In December 1996, Jane F. came to her office and showed her photographs. She recognized Bizayko immediately.

“He’s one of us,” says L.W., seated in the HHS office with her attorney on a frigid November day. “Coming from my community, I never even think about it. It is very bad not to trust.” But to trust in what? By offering to sell their Medicare-provider number, the doctor and his wife may have committed a federal offense – unused numbers must be discontinued, not sold. By the logic of L.W., however, Bizayko violated an unspoken code in the Russian community, that of casual and communal fraud. He brought major criminality to a friendly neighborhood system.

When Varano’s agents tried to recover the money – exactly $1,560,354.80 of it disappeared – Bizayko claimed to have only $100 in his personal bank account. Yet the émigré retained high-priced criminal defense lawyer Samuel Racer (who last February joined Barry Slotnick on the team that defended Russian crime godfather Vyacheslav Ivankov). On December 18, at Bizayko’s sentencing in Brooklyn federal court, Judge Reena Raggi pursued this discrepancy. “I consider this representation that he’s got $100 to his name in a checking account to be ludicrous,” Raggi exclaimed. “How has he managed to secure retained counsel in the case?”

Racer, wearing a dark double-breasted suit with his hair slicked back into a ponytail, consulted briefly with Bizayko. He then reiterated part of what his client had already told investigators, some of which he had stated in a written confession. Bizayko had not been acting alone but was hired as a mule. Wealthy Russian businessmen had threatened to hurt his family members in Russia unless he worked for them and opened up bank accounts. He described the boss of the scheme as a Russian man named Volodya, five feet nine, 180 pounds, with a “wide black mustache.” Bizayko’s account was bolstered by another Russian immigrant, Mikhail Pasekov, who was arrested for participating in a similar scheme and sentenced to six months’ home detention. Pasekov, who lived within blocks of Bizayko, also identified Volodya as his boss. He declined to speak with New York.

Racer told the court, “Bizayko was receiving 5 percent of the proceeds for doing these tasks, opening up the accounts, acting as the front for an individual by the name of, I believe, Vladimir, who is at present, to his knowledge, in Russia.” By this explanation, Bizayko is a small fish, which is why Varano’s people, particularly Jane F., continue to pursue his associates ardently.

Martin Coffey, the assistant U.S. Attorney who prosecuted Bizayko in federal court, concludes, “Too much money was moved too fast for this to be a loose group of individuals operating independently.” He explains that agents did ultimately seize a little over $200,000 from a variety of accounts. “But there’s a tremendous amount of money missing. I don’t think Mr. Bizayko has the whole million, but it was moved to other people.”

In court, Bizayko appeared chastened. His face was sunken, and he wore shaded glasses in addition to pale-blue prison garb and slip-on sneakers without laces. In his raspy voice, he told the judge, “I apologize for the acts I committed. It was a pure accident. I got involved in it by other people, and I’m very sorry. I can assure Your Honor that this will never happen to me again.”

Of course, this is a useful explanation for Bizayko to make if he acted alone and happened to stash away, or somehow spend, the $1.5 million. It is also useful for the numerous agencies seeking funding to expand organized-crime task forces; the threat of mob involvement helps them ratchet up the drama of their work and gain political, and financial, support.

But many believe that the mob threat is overrated. “Everyone’s got an organized-crime task force,” says Louis Parisi, vice-president of fraud investigation and detection at Empire Blue Cross Blue Shield. “But you can count on your left hand the mobsters they’ve caught for health-care fraud.”

The FBI, which has run a New York City squad devoted to health-care fraud since 1992, similarly argues that there is no proven involvement of the Russian mob in ripping off Medicare. The FBI does believe, however, that Russian émigrés operating as individuals, or working in loose association, are perpetrating health-care fraud at a staggeringly high rate. “There is a cultural distrust of institutions they have carried over from Russia, as well as the experience of obtaining goods and services from the black market,” says Lewis Schiliro. “But I don’t know if we can fully explain what is happening in the Russian community.”

In late December, Varano’s phone rings. A worried insurance-company executive is on the other end. The company has just received a sizable bill from a Brighton Beach medical-equipment company with a P.O. box for a mailing address that is near one of Bizayko’s mail drops. “It’s happening again,” says Varano. The night-light of bogus billing, as it were, has been turned back on.

Bizayko is in federal custody, waiting to be transported upstate. Jane F. is still investigating at least two subjects who used the same mail drops. Bizayko claimed in his statement to state investigators that he was hired by Volodya, the man with the wide black mustache, to open the accounts and deposit checks. How involved, or duped, Bizayko was remains unclear. He refused to answer such questions for investigators, even though it might’ve knocked time off his sentence. His attorney, Samuel Racer, says, “He’s not part of any organized-crime syndicate,” adding dismissively, “You know why? Because health-care fraud is so easy.”

Why, then, did Bizayko refuse to talk? Racer says, “Perhaps there was nothing to say. Sometimes when people talk, they make up the kind of stories the government likes to hear.” According to a source, however, Bizayko has been loudly boasting about the continuation of his scheme. “He’s not truly sorry. You’ve got to be kidding me,” says Jane F., scoffing at his courtroom apology. “The day after he gets out, he’ll be back into it.”

Varano’s people are left with a trail of bogus companies, rented mailboxes, and store owners who are less than willing to help the federal government. “There are about nineteen other insurance companies out there, vulnerable,” says Varano. “They are very worried that $20 million will go out the window in a month. One of the boxes became active again, and we’re trying to keep up with it. It’s the same location, maybe a new scheme, and you wonder, How the hell does that happen?

The Brighton Beach Swindle