Suit: City's largest municipal union overbilled by insurer now cooperating with feds

Posted: May 21, 2012

The scenario laid out in federal court Friday as insurance executive Kobie T. West pleaded guilty to fraud against the Philadelphia Housing Authority is similar to one laid out in a lawsuit filed against him by the city’s largest municipal union.

In both cases, West is accused of exploiting small and legitimate changes in insurance costs to gain hundreds of thousands of dollars in misappropriated funds.

West, 39, of Deptford, pleaded guilty in the PHA case and agreed to cooperate with a federal investigation into bribes and kickbacks involving public officials, a federal judge said at his hearing Friday.

In the PHA case, West, former president of West Insurance Group, a now-defunct Center City brokerage, admitted to defrauding PHA of $2.3 million in 2006 for a bill that should have been less than $170,000, giving himself a commission of $181,202 on the theft.

The PHA fraud began with a small and legitimate change in coverage costs. That’s also what happened at AFSCME District Council 33, according to the civil lawsuit the union filed in Philadelphia Common Pleas Court in May 2010.

In January 2008, the union’s health and welfare fund, chaired by union president Herman “Pete” Matthews, made small changes in how it would handle some co-pays and also payments for retirees.

The union, which represents nearly 10,000 blue-collar municipal workers in Philadelphia, paid its insurer, Aetna Inc., $1.16 million, based on an estimate of what those changes would cost. Aetna, in turn, paid West, the union’s lawyer, Samuel L. Spear of Spear Wilderman in Center City, said in an interview Friday.

Of the $1.16 million West received, only $331,000 was used to fund medical care and reimbursements for the plan’s beneficiaries, the suit said.

West kept the balance of more than $830,000, the suit claims.

The company justified keeping that money, in part, to pay “an alleged monthly ‘consulting service fee’?” of nearly $30,000 to a former West employee, Fareed Ahmed, according to the suit. Ahmed, a former vice president at West Insurance, was once known for his get-out-the-vote work that helped the political campaigns of former Mayor John F. Street and other politicians. West Insurance maintained that the fee was “pursuant to an alleged agreement” between Ahmed and Matthews, according to the lawsuit.

The consulting service fee “is not only false, it is a bizarre and outrageous claim,” the union asserted in court documents, adding that there was never any agreement to pay Ahmed a commission.

West and his company were fired in May 2009, according to the suit. Spear said that by then, word had gotten out about West’s involvement with the Philadelphia Housing Authority and the union did not want to be tangled up with any controversy.

The union’s new broker discovered the disparity between the amount West was getting and the amount that was paid for actual services, the suit said.

By the time West lost his contract with District Council 33 in 2009, he was already under federal investigation and had been in communication with the U.S. District Attorney’s Office, according to U.S. District Judge Joel H. Slomsky’s comments during West’s plea hearing Friday.

The union lawsuit, now scheduled for trial in August, never came up in federal court.

But in the months after the suit was filed, FBI agents visited union officials at D.C. 33 headquarters at 30th and Walnut Streets, according to two union officials who were there at the time.

The two, leaders of two of the handful of locals that make up the District Council, said in interviews Thursday the FBI questioned them in the late summer or fall of 2010.

Van Cooper, president of Local 427, said the FBI asked whether he knew anything about West’s treating Matthews to trips to the Super Bowl and All-Star Games. Evon Sutton, business agent for Local 488, said she was asked similar questions.

Asked whether Matthews was also interviewed, Spear said: “I do know but I can’t comment on it.” He declined to make Matthews available for an interview.

Joseph J. Khan, an assistant U.S. attorney, declined to comment Friday on whether the investigation included the union’s dealings with West, as did West and his attorney, Christopher R. Hall of Saul Ewing LLP.

Cooper, who represents city sanitation workers, and Sutton, who represents city health workers, are part of a slate that opposed Matthews in recent elections. Sutton is the wife of former D.C. 33 president James Sutton, whom Matthews defeated to take over the union’s leadership in 1996.

When the ballots were counted on May 8, Evon Sutton lost the race against Matthews. The U.S. Labor Department ordered a fresh election for Cooper, who was improperly left off the ballot in the race for union secretary-treasurer.

West Insurance was also a target of criticism in March by New Jersey state Comproller Matthew Boxer, when Boxer questioned a series of insurance deals with the Delaware River Port Authority. West was among a number of companies that received hundreds of thousands of dollars in commissions from the DRPA without, according to Boxer, evidence of actually doing work. Attorney J. Bruce McKissock of Marshall, Dennehey, Warner, Coleman & Goggin, who represents the West companies, did not return a phone call. Calls made to several phone numbers for Ahmed went unanswered.

Contact Jane M. Von Bergen at 215-854-2769, jvonbergen@phillynews.com, or follow @JaneVonBergen on Twitter. Read her blog at www.philly.com/jobbing.

Inquirer staff writer Jennifer Lin contributed to this article.

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