Fraud trial opens against ex-Blue Cross executives

October 18, 1994|By Timothy J. Mullaney | Timothy J. Mullaney,Sun Staff Writer

The trial of two former Blue Cross and Blue Shield of Maryland executives opened yesterday, as prosecutors accused former Chief Financial Officer Edward T. Zimmerman and an aide of diverting more than $1 million to three companies in which they secretly held financial interests.

Defense lawyers called the charges an attempt to cast internal company arguments over strategy as crimes.

Mr. Zimmerman and Claude H. Holemon left Blue Cross in 1989, after top executives called them on the carpet about their dealings with a Pennsylvania computer firm in which they once owned 60 percent and with two firms they set up to lend money to health care providers.

Blue Cross initially didn't report the activity to criminal authorities, Assistant U.S. Attorney Stuart Berman told the jury in U.S. District Court in Baltimore. But the FBI began digging after U.S. Senate hearings in 1992 exposed financial irregularities at the Owings Mills-based health insurance company.

Mr. Zimmerman and Mr. Holemon were indicted in March and charged with mail fraud, wire fraud and aiding and abetting.

"This is not a case about health care. This is not a case about insurance," Mr. Berman said near the beginning of his opening statement. "What this case is about is fraud and lying and conflict of interest."

Attorney Paula M. Junghans, representing Mr. Holemon, said Blue Cross didn't report the activity because dispute was not about a crime, but a simple disagreement over business strategy. She said the dispute was spiced by other executives' dislike for Mr. Zimmerman.

Mr. Zimmerman "wasn't a stuffy, old-line insurance [executive]," Ms. Junghans said. "He was considered to be a visionary."

Ms. Junghans said that only $42,000 of the disputed money actually found its way into the defendant's pockets, in the form of what the defense contends were consulting payments from the computer company.

The biggest amounts allegedly diverted involved the two executives' efforts to set up a company called Medical Payment Services of Maryland Inc., which was designed to lend health care providers money.

The prosecution contends that Mr. Holemon formed Claude H. Holemon Enterprises to buy an operating license from a Virginia company and introduce the payment program in Maryland.

Blue Cross lent Holemon Enterprises $110,000. Blue Cross also contributed $595,000 in capital to Medical Payment Services of Maryland.

Also, Mr. Berman charged, the pair diverted $311,595 to Northern Digital Corp., a suburban Philadelphia computer retailer which each owned a 30 percent stake. Most of the money was used to buy computers and software for a Blue Cross subsidiary called Pertek Inc., which sold information services and systems to health-care providers.

Mr. Berman said the pair didn't solicit bids from other companies and didn't disclose their ownership stake to Blue Cross on an ethics questionnaire.

Mr. Holemon was president of Pertek, which was created as part of former Blue Cross Chairman Carl Sardegna's effort to diversify the nonprofit insurance company into for-profit businesses. Mr. Zimmerman was president of Blue Cross' Diversified Business Group, an umbrella organization for the for-profit businesses.

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