RICHMOND, Va. (AP) -- A Texas company that provided health insurance to Virginia Tech students fraudulently overstated claims by more than $9 million to boost its profits, according to a 57-count federal indictment unsealed Tuesday.
The grand jury indictment in U.S. District Court in Abingdon, Va., charges GM-Southwest Inc. and its former owner, 73-year-old John Paul Gutschlag Sr., with racketeering, conspiracy, money laundering and fraud. The indictment says that by overstating claims, the company was able to charge higher premiums to Virginia Tech and its students and discourage competitors from bidding to provide the service.
Company officials in Frisco, Texas, did not immediately return a telephone message, and no phone listing could be located for Gutschlag in the Frisco area. Court documents do not list an attorney for the defendants.
The indictment seeks forfeiture of the defendants' property and bank accounts, which were frozen Tuesday by U.S. Magistrate Judge Pamela Meade Sargent.
"This is a step in the process of trying to recoup the losses that we believe we sustained," Virginia Tech spokesman Mark Owczarski said in a telephone interview. "It's clearly a lot of money, and given the fiscal realities, these are state resources and we need to make sure they are used and managed most effectively."
According to the indictment, GM-Southwest is a third-party administrator of health insurance for secondary school and college students. Major insurance carriers provide the coverage, but GMS collects premiums, pays claims and reports the transactions to both the schools and the carriers. The carriers pay GM-Southwest a commission or fee for the service.
The indictment says the company, at Gutschlag's direction, reported accurate figures to the carriers but inflated claims numbers to the university over a seven-year period beginning in the 2003-2004 academic year. It says the university's risk manager retired in 2010, and that employee's successor questioned the accuracy of EM-Southwest's reports.
Owczarski said an internal review of the program determined the university was overcharged. He said university officials reported the findings to the Virginia attorney general's office, which turned it over to federal authorities.
Aetna now administers the university's student health plan, Owczarski said.
The indictment charges the defendants with 41 counts of mail fraud, seven counts of wire fraud, five counts of money laundering and one count each of racketeering, mail fraud conspiracy, wire fraud conspiracy and money laundering conspiracy.
U.S. Attorney Timothy J. Heaphy's office says that if convicted, Gutschlag could face up to 20 years in prison and a $500,000 fine on each count. The company also could be fined $500,000 per count.
No hearing dates have been scheduled.