Dubious sinkhole repairs raise costs and questions of fraud

The following article was published in the Tampa Bay Times on January 2, 2012:

Dubious sinkhole repairs raise costs and questions of fraud

By Susan Taylor Martin and Dan DeWitt

The engineer who was supposed to monitor the job rarely if ever showed up.

The cement trucks that were supposed to pump grout into the ground sometimes left nearly full.

And one contractor joked that the work was a “perp” — perpetrating fraud on the insurance company that paid him hundreds of thousands of dollars to stabilize sinkholes.

It was a scenario allegedly repeated time and again at homes throughout Florida’s “sinkhole alley” from Orlando to Tampa Bay.

The contractor, Michael Dean Hodge, of Oviedo faces felony charges of racketeering and insurance fraud in what State Farm Insurance said was a conspiracy to charge for work never done and grout never used. Among the companies allegedly involved was Advanced Pier Technology, a well-known Brooksville firm whose co-owner advertises on TV as “The Sinkhole Guy.”

If true, the overcharges are one reason why insurance losses from sinkhole claims have soared, driving up premiums for all Florida policyholders and not just those in sinkhole-prone areas. Citizens, the state-run company that insures nearly 1.5 million property owners, says it has lost an estimated $245 million in 2010 — seven times more than the premiums it took in for sinkhole coverage.

The nature of sinkhole repairs can make it difficult to detect fraud. The two primary methods involve work largely done underground: installing steel piers or pins deep into the ground to secure the house or injecting grout, a cement-based material, into the sinkhole to stabilize it.

There are also numerous players: engineers who are supposed to monitor the work, companies that sell cement, companies that pour cement and repair companies such as Advanced Pier Technology that often act like general contractors.

State Farm, which sued to obtain records from Advanced Pier and others, declined to comment. But court filings show that what grew into a criminal investigation involving the Office of Statewide Prosecution began with a complaint from a homeowner in Hernando County.

In 2007, Joseph O’Boyle hired Advanced Pier Technology to stabilize a sinkhole at his Spring Hill home. The company sent State Farm an invoice for $94,410.

Advance Pier’s proposal said the work would take 24 days, but it was done in two weeks “at the top,” O’Boyle said, according to the transcript of his interview with a State Farm representative. The crew, which came from Orlando, arrived about 10 a.m. and by 3 p.m “they were leavin’ already.”

O’Boyle and his family watched workers put in piers, only to pull them out, saying there were “dead holes” that didn’t need to be filled.

And although the invoice showed that Mike Tannous Engineering, a Casselberry firm, spent 20 hours inspecting the site, “we had never seen this man on this job,” O’Boyle said. He also complained “there ain’t no way” contractors used as much grout as they said. “That’s why everybody’s insurance goes up, because of stuff like that,” O’Boyle complained.

‘Big bull’s-eye’

State Farm reviewed other claims in which Advanced Pier Technology was involved. Of special interest were invoices submitted by A&M Contracting, owned by Michael Hodge.

In 2010, a detective with Florida’s Department of Financial Services went to serve a subpoena at A&M’s corporate address. It turned out to be a residential lot in rural Seminole County with a locked gate and guard dogs, but none of the heavy equipment usually associated with sinkhole repair. A relative confirmed Hodge ran the business out of his home, but said he worked primarily on Florida’s west coast.

Interviewed later, a former A&M foreman, Thomas Coen, said Hodge referred to jobs as “perps” — for perpetrating insurance fraud.

“Specifically this meant that in many cases no holes were actually drilled or voids filled with grout,” according to a probable cause affidavit. “Mr. Coen stated that because of this practice, cement trucks were sent back full of concrete even though he believes the insurance company or customer was billed for the grout.”

Another employee said they rarely saw anyone from Mike Tannous Engineering, which was supposed to monitor the work.

In August, Hodge, 52, was arrested on charges his company overbilled State Farm $202,800 for grout at 11 homes in the Orlando area. In court records, State Farm listed another 17 houses, including several in the Tampa Bay area, in which alleged grout overcharges were as much as $33,825 for a single house.

Hodge and Advanced Pier Technology “seem to have partnered on multiple sinkhole projects for the very purpose of submitting inflated bills,” State Farm said in one suit.

Hodge has pleaded not guilty. Bishar “Mike” Tannous could not be reached for comment. Advanced Pier’s founder, Mason Chickonski, calls the allegations “100 percent false.”

“We have a big bull’s-eye on us because we stick up for home­owners here in Hernando,” said Chickonski, a licensed building contractor. “Everything we do is for the people, and we caused State Farm a lot of grief and a lot of money. They try to keep us wrapped up in court.”

Just good business

State Farm and Florida investigators also focused on Jeffrey Powell, an independent sales rep for Advanced Pier Technology. In a 2009 lawsuit, State Farm called Powell the “front man” who contacted homeowners and offered “discounts, reimbursements and other forms of valuable consideration (i.e., kickbacks)” to get them to hire the company.

In May, Florida lawmakers made it a felony to offer rebates for sinkhole repairs. Homeowners who accept a rebate could have their sinkhole coverage voided and would have to refund the rebate amount to the insurer.

Before the law changed, “every company offered incentives back to the homeowner,” Powell told the Tampa Bay Times.

Powell said he sometimes gave “cash incentives” while working with Advanced Pier Technology. As an independent representative, Powell said, he would quote the homeowner a higher price for underpinning than what Advanced Pier quoted to Powell.

“They’d let me sell it for $700 (a pin) and I’d tell the homeowner $900,” he said. “I could make $200. If I wanted to give the homeowner (money) back on that job, I would.”

With a typical home requiring 20 or more pins, Powell could earn a considerable sum. But he said there was no fraud because the insurance companies were no longer involved — all were closed claims in which the homeowner had received a payout and was on his own to hire a repair company, Powell said.

State Farm dropped its case against Powell, and the state closed its investigation because of “insufficient evidence.”

Missing permits

Advanced Pier Technology, which Chickonski started in 2004, is among the best-known of a growing number of sinkhole repair companies in the Tampa Bay area. Co-owner Taylor Yarkosky advertises on TV and billboards as “The Sinkhole Guy.”

In a Tampa Tribune story last year, Yarkosky criticized home­owners who don’t use insurance payouts to make sinkhole repairs. “The problem of sinkholes is legitimate,” he told the paper. “But there are people playing the system.”

Some of those unrepaired homes have been lucrative for Yarkosky and Chickonski, records show. Through a company called APT Properties, the two men bought six houses in Hernando County for as little as $20,000 and flipped them for as much as $219,500. Before reselling the houses, Yarkosky and Chickonski took out county permits to stabilize the sinkholes.

Chickonski, however, bought four other houses and made at least some repairs without getting the required permits.

Among them was a Spring Hill home that Chickonski purchased in 2008 for $81,500 from a man who got an insurance payout, but never made repairs. Six months later, Chickonski sold the house for $157,000. The buyer, Steven Mason, said Chickonski gave him a report from Award Engineering of Tampa, which certified that Chickonski’s company had installed 24 piers to stabilize the sinkhole.

Partly because of that report, Mason decided to forego sinkhole insurance. Now he wonders if the work was done as certified, especially since new cracks have appeared and some baseboards are pulling away from the walls.

Award Engineering is among the companies from which State Farm sought records as part of its investigation into suspected fraud. State Farm later dropped its case against the company. Award Engineering’s lawyer, Joseph Fritz, said “We’re not in cahoots with anybody.”

Fritz said he was surprised, however, that Award engineers who said they inspected the work at Mason’s home wouldn’t have noticed there was no permit posted, as required.

“I told them, ‘Don’t ever do a damn project without seeing those things,’ ” Fritz said. “Do they make mistakes? Sure. Does that mean the work wasn’t done? It doesn’t mean that, either.”

Skepticism persists

In 2008, Chickonski bought another sinkhole house in Spring Hill for $25,000 and sold it less than three months later to retiree Frank Pasiuk for $85,000. Pasiuk also was given a report from Award Engineering with photos that showed workers apparently installing 22 piers around the house.

Though he hasn’t noticed any problems, Pasiuk is skeptical.

“This guy buys the house for $25,000 and maybe puts $10,000 in to make it appear that it’s a sinkhole repair when it might not be,” Pasiuk said. “It might be a scam that affects the value of my property.”

After the Tampa Bay Times pointed out that there were no permits for sinkhole work at Pasiuk’s home or the other houses, the Hernando County Development Department opened an inquiry. Failure to obtain a permit can result in fines and the loss of permitting privileges in Hernando.

Permits are a source of revenue for a county and a way to help county officials monitor construction work.

Chickonski said he takes “complete blame” for not getting permits on two of the houses. He said he farmed out repairs on the other two homes to contractors who should have pulled the permits.

In saving a total of about $1,000 in permitting fees, Chickonski and the contractors also avoided creating any public record of sinkhole activity at the four houses. Had permits been issued, they would show up on the websites of the development department and the Hernando property appraiser’s office.

Said John Emerson, chief deputy property appraiser: “It wouldn’t become public knowledge that there was a sinkhole on that property” — a designation that can scare off potential buyers.

Find this article here:  http://www.tampabay.com/news/localgovernment/dubious-sinkhole-repairs-raise-costs-and-questions-of-fraud/1208769