1997-06-09 -- Guilty Pleas in Fraud Related to Northridge Quake.

 

President of San Fernando Valley Distribution Firm Admits Role in Multimillion Dollar Insurance Fraud after 1994 Earthquake.

 

LOS ANGELES, June 9 -- The president of what was the nation's second-largest computer software distributor pleaded guilty today to two counts of mail fraud for ordering employees to destroy merchandise and then claiming that the inventory was damaged in the devastating Northridge earthquake that struck three years ago, United States Attorney Nora M. Manella announced.

 

Irwin Bransky, of Encino, who was the president and chief executive officer of Kenfil Distribution, Inc., pleaded guilty to two counts of an eight-count federal indictment that outlined a four-month scheme designed to defraud RLI Insurance Company.

 

Nelson Landman, the vice president of the firm who was also named in the indictment, pleaded guilty last week to one count of mail fraud.

 

The insurance scheme was engineered by Bransky  and Landman after the Northridge earthquake that struck on the morning of January 17, 1994, according to Assistant United States Attorney Aaron Dyer.

 

Prior to the disastrous temblor, Kenfil was facing financial difficulties. Two of the company's warehouses in Van Nuys were overstocked with software that it could not sell to retailers such as Computer City, CompUSA and Egghead Software. Furthermore, Dyer said, WordPerfect was in the process of canceling Kenfil's biggest account.

 

The earthquake provided Bransky and Landman an opportunity to alleviate Kenfil's financial woes, according to Dyer.

 

As a result of the temblor, Kenfil's main warehouse, located at 16745 Saticoy Avenue in Van Nuys, suffered minor damage, which consisted primarily of software being knocked from shelves on to the floor. After surveying the damage, Bransky instructed Landman and others to further damage software so the manufactured losses could be included on an insurance claim.

 

In the days following the earthquake, Bransky and Landman coordinated the destruction of substantial amounts of software by instructing employees to jump on packages and to bend them with their hands, according to Dyer. The prosecutor said in court that as many as 40 warehouse employees participated in the destruction of the merchandise, some of which was damaged by driving forklifts over product and by playing "baseball" with packages.

 

As part of the insurance fraud scheme, Bransky also ordered employees to bring large amounts of obsolete software from a second, uninsured warehouse also in Van Nuys to the main warehouse, where that software was destroyed as well.

 

In documents filed with the court, Dyer said that as much as 95 percent of the damaged software was intentionally damaged by Kenfil employees.

 

At Bransky's direction, Kenfil submitted a claim to its insurance company that asked for more than $5 million, making this case the largest fraud prosecution stemming from the Northridge quake. The firm received $840,000 before the fraud was discovered.

 

Bransky, who is now 47, is scheduled to be sentenced on September 19 by United States District Judge J. Spencer Letts. He faces a maximum sentence of 10 years in federal prison and a fine of up to $1.68 million, which is twice the amount of the loss.

 

Landman, who is 59 and now lives in Scottsdale, Arizona, lived in the City of Industry at the time of the earthquake. He is also scheduled to be sentenced by Judge Letts on September 19.

 

In 1994, Kenfil was taken over by the Orange County-based Ameriquest, which is another distribution firm.

 

This case is the result of an investigation by the Federal Bureau of Investigation.

 

The United States Attorney's Office has spearheaded the Los Angeles Disaster Fraud Task Force, a group that is comprised of ten federal and state law enforcement agencies, including the FBI, the Federal Emergency Management Agency and the Small Business Administration.

 

Since prosecutions began in March 1994, more than 60 individuals have been convicted of crimes ranging from submitting false FEMA applications in connection with the Northridge Meadows Apartments where 16 people died, to submitting fraudulent disaster business loan applications to the SBA for as much as $1.5 million. The Task Force has also prosecuted FEMA inspectors for submitting false inspection reports and individuals who fraudulently obtained and illegally sold disaster-related food stamps.

 

The defendants have been sentenced to as much as 6 years in prison, and every person prosecuted has been ordered to pay restitution, which now totals more than $3 million. Since the onset of the prosecutions, more $16 million has been voluntarily returned to FEMA by individuals who improperly received payments.

 

Release No. 97-144

 

U.S. Attorney for the Central District of California

Nora M. Manella, United States Attorney

312 North Spring Street, 12th Floor

Los Angeles, California 90012

Main Office Number: 213-894-2434

 

Public Affairs Office: 213-894-6947; fax: 213-894-5377

Thom Mrozek: Public Information Officer

tmrozek@justice.usdoj.gov

Archived News Releases/Documents: http://www.usdoj.gov/press.html

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