5 arrested in $3.2 million California sober living home fraud scheme

Five people have been arrested in connection with an alleged $3.2 million sober living home fraud scheme that preyed on vulnerable substance abuse patients to swindle millions of dollars from an insurance company, authorities announced Friday.

Taken into custody this week were Steven Lomonaco, 61, of Laguna Beach; Mahyar “Christian” Mohases, 37, of Santa Ana; Robert Williams, 41, of Murrieta; Nicholas Reeves, 42, of Aliso Viejo; and James Frageau, 29, of Temecula. They have been charged with multiple felony counts, including insurance fraud and money laundering, in connection with joint investigative efforts by the Orange County District Attorney’s Office and California Department of Insurance.

In addition, Mohases, Williams, Reeves and Frageau have each been charged with two counts of committing medical insurance fraud, one count of fraudulent written claim to an insurance company, two counts of money laundering in excess of $150,000, four counts of money laundering, and one enhancement for aggravated white collar crime over $200,000, according to authorities. They each face a maximum sentence of 14 years in prison if convicted on all charges.

Lomonaco also has been charged with two counts of committing medical insurance fraud, one count of fraudulent written claim to an insurance company, one count of medical insurance fraud, and one enhancement for aggravated white collar crime over $200,000. He faces a maximum sentence of eight years, four months if convicted on all charges.

“Sober living homes are valuable resources designed to facilitate recovery and healing for patients battling potentially life-threatening addiction issues,” Orange County District Attorney Todd Spitzer said in a statement.

‘Exploited their addictions’

“Instead of helping these patients, these individuals preyed on extremely susceptible people and exploited their addictions for profit. Working closely with the California Department of Insurance, we are cracking down on these criminals and their predatory operations in order to protect substance abuse patients from unknowingly being trafficked, as well as protect their loved ones and insurance companies from these unscrupulous operators.”

Mohases, Frageau, Williams and Reeves allegedly found patients from throughout the United States seeking help for substance use recovery and then flew them to California to enter treatment at Casa Bella International Inc., which was owned and operated by Lomonaco, authorities said.

Then, to obtain payments from an insurance company that was not identified, Mohases, Frageau, Williams and Reeves allegedly directed employees to fill out policies for these patients using false information.

The defendants also are accused of orchestrating a massive money-laundering scheme by filtering funds through a nonprofit, StopB4UStart, by providing so-called donations from Mohases, Frageau, Williams and Reeves from their corporation, Nationwide Recovery.

“These ‘donations’ would be cashed out, and the owner of StopB4UStart would receive cashier’s checks in specified amounts based on the information he received from one of the other co-conspirators,” authorities said in a statement. More than 800 checks in total were used to pay the insurance premiums on the fraudulent policies.”

Actions ‘appalling’

California Insurance Commissioner Ricardo Lara, who carried a bill prohibiting body-brokering when he was a state legislator, described the alleged offenses committed by the defendants as “appalling.”

“These suspects trafficked vulnerable substance abuse patients to California just to make a quick buck from the insurance company, with no regard for their lives, health or recovery. Thanks to the efforts of Department of Insurance investigators, and our close work with District Attorney Todd Spitzer’s office, there is one less fraud ring preying on unsuspecting patients.”

Mohases, Reeves and Frageau have been released on bail from the Orange County jail. Details about whether Williams and Lomonaco are in custody were not immediately available Friday.

Casa Bella Recovery has been battling HealthNet in court for nearly three years, with Mohases and Lomonaco named as cross-defendants. Among other things, the litigation raises the question of whether referral fees — the common industry practice of paying someone to find clients, often on retainer — is a simple business practice or a matter of fraud.

“We’re not quite sure yet what the facts they’re alleging are,” said Jack Earley, Lomonaco’s attorney. “At this point, he maintains his innocence.”

Lomonaco was looking forward to clearing up the issues in the HealthNet proceedings, and now is looking forward to doing that here as well, Earley said.

Attorneys for the others did not immediately return requests for comment Friday.

Orange County and the Greater Los Angeles area are so dense with addiction treatment and sober living facilities that it’s known as the Rehab Riviera.

Over the past several years, the Southern California News Group has chronicled disturbing reports of deaths, sexual assault, drug abuse and paying for patients inside California’s loosely regulated addiction treatment industry. Those reports have prompted federal probes, the Orange County task force that made these arrests, a sober living registry and new state laws designed to protect vulnerable people struggling with addiction.

Lawmakers are working on a major overhaul of the industry they hope to introduce this year.

Law enforcement appears to be taking the issues more seriously as well. In October, federal agents raided four addiction treatment centers in Los Angeles and Orange counties, seeking evidence in a criminal probe.