US authorities arrest former Novocastrian Kirsten Wallace over $US176 million insurance fraud involving Community Recovery rehabilitation centres in California

CHARGED: A mugshot of former Novocastrian Kirsten Wallace following her arrest in US on significant fraud matters. Picture: California Department of Insurance.
CHARGED: A mugshot of former Novocastrian Kirsten Wallace following her arrest in US on significant fraud matters. Picture: California Department of Insurance.

UPDATE, 12.30pm:

FORMER Novocastrian Kirsten Wallace will face a Los Angeles court early Wednesday (ADST) as prosecutors now claim she faces up to 53 years in jail if convicted over one of California’s largest insurance frauds.

Ms Wallace, 43, was the chief financial officer of Community Recovery of Los Angeles, a company which ran about 20 rehabilitation centres in southern California and Colorado.

Along with the company’s owner and operator Chris Bathum, the Australian woman was arrested last Thursday following a long investigation by the California Department of Insurance.

They are each charged with 31 counts of money laundering, eight counts of grand theft, six counts of identity theft and five counts of insurance fraud.

Mr Bathum has also been charged with sexually assaulting nine patients.

The Los Angeles District Attorney’s office alleges Ms Wallace and Christopher Bathum obtained multiple health care insurance policies for their clients, using their personal identifying information and falsified the clients’ circumstances to obtain the policies. The patients were unaware that policies had been issued in their name, prosecutors added.

The DA’s office said in a statement on Tuesday that Bathum and Wallace were also accused of billing for former clients after their treatment ended while those clients were still working at CRLA and no longer receiving treatment.

“Between June 2012 and December 2015, Bathum and Wallace are accused of fraudulently billing an estimated $175 million [$A233 million]. In most instances, bills were sent for services allegedly never provided,’’ the statement said.

“About $44 million [$A58 million] was paid out by five insurance companies, prosecutors said.

“If convicted as charged in the healthcare fraud case, Bathum and Wallace each face up to 53 years in state prison. He faces up to life in prison if convicted in the sexual assault case.”

Ms Wallace is scheduled to be arraigned on Wednesday (ADST).

The case remains under investigation by the Los Angeles County Sheriff’s Department, the Los Angeles County District Attorney’s Bureau of Investigation and the California Department of Insurance.

EARLIER:

A FORMER Newcastle woman is facing over 35 years in a United States jail after being accused of being involved in one of the biggest insurance frauds in Californian history.

Kirsten Wallace was due to face a Los Angeles court early on Tuesday after being charged on Thursday with multiple counts relating to the alleged fraud of $US176 million ($233 million) involving drug rehabilitation centres.

The California Department of Insurance alleges Ms Wallace, who was the chief financial officer of the Community Recovery company which ran about 20 rehab centres, and company owner Chris Bathum were involved in “an elaborate conspiracy’’ to defraud patients and insurers.

Prosecutors will allege Ms Wallace and Mr Bathum, who is also being investigated for sexually assaulting patients, stole patient identities, bought health insurance policies for patients without their knowledge and continued to bill insurance companies for treatment after the services were completed.

“Bathum and Wallace’s alleged conspiracy victimized hundreds of people addicted to drugs and alcohol by keeping them in a never-ending cycle of treatment, addiction and fraud – all the while lining their pockets with millions of dollars from allegedly fraudulent insurance claims,’’ California Insurance Commissioner Dave Jones said.

The charges include: identity theft for submitting fraudulent health insurance applications without patients’ knowledge; five counts of billing fraud for submitting claims for services not provided and duplicate billings; five counts of grand theft by false representation for representing [their company] as a residential treatment facility, which it is not licensed to provide; and five counts of grand theft by false representation to insurers for filing fraudulent health insurance policy applications.

Additional charges include enhancements for losses greater than $US500,000 and greater than $US3.2 million.

“This is likely the first wave of indictments and charges in an ongoing investigation into one of the largest health insurance fraud cases in California,’’ Mr Jones said.

Ms Wallace, originally from Coffs Harbour, moved back from the US to Newcastle in late 1999 to be near her mother.

She lived in Carrington and Mayfield for about seven years before her and her young daughter moved to the US about 10 years ago.

Ms Wallace was arrested in California on Thursday, with the Los Angeles Times reporting at least 16 locations were raided.

The newspaper said the company ran six centres in Colorado and 13 drug and alcohol rehabilitation facilities in Los Angeles. 

The department said if convicted, the pair face “more than 35 years in prison”. Bail was requested at $2 million and both were likely to be arraigned overnight Monday (ADST).