Auto insurance fraud is the latest scheme to hit the West Coast as a ring of used-car dealers allegedly ripped off auto insurers for $22,000 by filing fraudulent insurance claims, according to the California Department of Insurance.
The organized fraud involved owners and associates of Sacramento, Calif.-based Habib Auto Sales, Ocean Auto Sales, and Rusul Auto Sales. The dealership owners would allegedly buy damaged vehicles from auto auctions and stage collisions or damage with those vehicles to collect fraudulent insurance payouts.
Investigations found several examples of how the fraud ring was allegedly executed, including one instance where a perpetrator bought a 2007 BMW with mechanical issues at an auto auction. On the same day, a co-conspirator reported a single vehicle collision to his insurer and claimed he bought the same 2007 BMW from a dealership. His insurer accepted the claim and paid him $9,295 for the alleged accident.
Auto fraud experts Frank McKenna, chief fraud strategist at PointPredictive, and Josh Wortman, an analyst with General Forensics, told Auto Finance News the red flags to note from this case. The first sign of suspicion is that Habib Auto Sales and Ocean Auto Sales have been related parties since 2017 and shared an operating address at 605 Sunbeam Avenue, Wortman said.
Falling inventory levels showed business risk for Habib Auto Sales, the next red flag, Wortman said. “Habib Auto Sales’ inventory advertising on the web started to show problems in August 2018 and stopped completely in November 2018. The next month, they closed their Sacramento location and did not renew their operating license,” he said.
However, in May 2018, a second Habib Auto Sales received a separate operating license for an address in San Diego using a residential address, Wortman shared. “This new license was registered to a different owner and obscured the relation between the parties,” he said. “It’s not fraud, but it’s a great way to hide. As far as we can tell, Habib Auto Sales never advertised inventory associated with the San Diego location.”
PointPredictive also found evidence of some suspicious activity in loans originating from Habib Auto Sales. “For example, we saw borrowers buying cars that claim to have worked for the [dealership] at the time they purchased the vehicle, and we also see that some of the borrowers had patterns of synthetic identity characteristics like using SSN’s that were issued before they were even born,” Mckenna explained.
As such, lenders must be wary when working with used-car dealerships that have short operating histories, like in this case. “[Working with] new dealerships — particularly used-car dealerships — is a really tricky business for lenders, which is why they need to carefully monitor deals for misrepresentation when they start booking business with a dealership that doesn’t have very much history,” McKenna said.
Three of the co-conspirators were taken into custody without incident and booked into the Sacramento County jail on June 18. The fourth perpetrator self-surrendered to the Sacramento County jail on June 20.