LOS ANGELES – Three people, including the CEO of an insurance company in Long Beach, were arrested Wednesday on federal charges alleging they were operating a scheme to defraud insurance finance companies.

Taken into custody at their homes were Lee Anthony Corlette, 64, of Redondo Beach; Sherman Franklin Hulsey, 60, of Santa Barbara, and Jane Graves, 61, of Astoria, Ore.

A federal grand jury in Los Angeles returned an indictment against the trio on Sept. 5, said Bruce Riordan of the United States Attorney’s Office.

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Corlette was charged with seven counts of mail fraud, nine counts of wire fraud and 16 counts of aiding and abetting in connection with a scheme to submit numerous fraudulent insurance premiums to insurance finances companies.

Hulsey and Graves were charged with one count of mail fraud each, three counts of wire fraud and four counts of aiding and abetting.

“Insurance fraud is not a victimless crime,” said United States Attorney Andre Birotte Jr. “The allegations in this case describe a wide- ranging fraud scheme and my office is working with our partners at the federal, state and local levels of law enforcement to protect consumers and remedy serious fraud like that alleged here.”

Birotte said his office works closely with the FBI in investigating alleged fraud cases involving the insurance industry.

The indictment alleges that Corlette, while CEO of Insurance Works Inc., and doing business as Star Alliance Insurance Services in Long Beach, obtained more than $4 million in fraudulent loans from the finance companies who believed the money would be provided to the carriers identified in the agreements submitted by Corlette.

The other two defendants were alleged to have assisted Corlette by providing information about their businesses so she could submit the agreements and fraudulently obtain the loans.

Hulsey owned Liberty Paradise LLC in Santa Barbara and Global Consulting Services, doing business as Vanguard Benefits. Graves was secretary/treasurer of Global Consulting and owner of Steward Holdings LLC in Astoria.

Earlier in the year, a former bookkeeper was charged in connections with the scheme and is awaiting sentencing. The defendants face a statutory maximum penalty of 20 years in federal prison for each count of mail fraud and wire fraud.

Triangle Credit Card Fraud is a common scam known to affect many on-line merchants. It has been called “Triangle Credit Card Fraud” because there are three primary parties involved or impacted by the scam.

The first party is the fraudster who acts as a seller on a popular auction or marketplace site. The fraudster “sells” a product to the second party, the buyer that knows nothing about the scam. The buyer pays the seller for the product or service. The seller then needs to deliver the product or service to the buyer and does so by placing an order with the manufacturer of the product or service to the buyer and does so by placing an order with the manufacturer of the product or service, the third party. That order will contain the buyer’s information for shipping and stolen credit card information for billing. When the company receives the order, the billing and shipping information is all legitimate, thus it looks like an order being placed as a gift, so the company delivers the product or service.

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When the card holder finds a fraudulent charge on their card, they may file a dispute with the credit card company resulting in a chargeback for the company. This scheme is often much more complex as it is often led by overseas criminals who recruit established sellers (often referred to as mules) on auction or marketplace sites to “sell” the products. Once a sale is completed, the mule will forward the buyer information and the bulk of the money to the fraudster to place the fraudulent order. Once a mule becomes trusted, they are often allowed to recruit other mules, leading to a complex pyramid of fraudsters and mules.

Through the on-line merchant community, many companies have been made aware of this scheme and have had great successes with stopping the illegal activity using fraud prevention and detection solutions as well as successful criminal prosecutions.

The IC3 has previously reported on work-at-home schemes where victims advised they applied for employment through on-line resumes. The alleged employers used the names of well-known financial institutions and industry agencies to lure their victims into the scheme. The potential employees were contacted via e-mail and interviewed for various positions using Yahoo! Instant Messenger.

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In some cases, the employees were required to purchase various software packages to perform the tasks required for their employment. The employees received a check and were instructed to keep a portion of the funds for supplies and wire the remaining funds to another individual. Once the employee wired the funds, the check was returned as counterfeit. The IC3 has received over 80 complaints identifying a twist to the scheme reporting that employees were asked to post employment advertisements on Craigslist and provide full details of a credit card, including owner name, address, card number, security code, and the expiration date of the card. In doing so, the victim unknowingly became a recruiter for the fraudster.