Private Insurer Pays Government Lawyers to Pursue Fraud Charges

By Jay Root and Tony Plohetski  |  September 9, 2015
Rafael Aguilera for the Austin American-Statesman
Roy Kyees, who is pictured with his wife, Teresa, on June 4, 2015, was prosecuted by a unit of the Travis County district attorney’s office that is funded by Texas Mutual Insurance. The charges that he defrauded the company were dropped, and he later sued the mega-insurer for wrongful prosecution. The suit was settled in 2013.

If he had it to do over again, Odessa native Roy Kyees would have ignored what the doctor told him. He would have walked out of that office and never filed a work injury claim for his back pain. He would have just paid for it out of his own pocket.

Then he never would have tangled with the largest provider of workers’ compensation insurance in Texas. He never would have gotten indicted for insurance fraud. Never would have been arrested and put in leg chains in his hometown jail.

Then again, Kyees didn’t know in January 2006 what he knows now: that his insurance company not only hired the investigators who compiled the case against him; it also pays the salaries of the government prosecutors who got him indicted on felony fraud charges.

Unlike other insurance companies in the state, Texas Mutual Insurance Company enjoys an exclusive deal with the Travis County district attorney.

Both the prosecutors and company executives say the arrangement benefits Texas businesses by cutting down on costly fraud and keeping workers’ compensation insurance affordable.

“All we agree to do is reimburse the Travis County prosecutor for the cost of handling our cases,” said Tim Riley, chief of fraud investigations at Texas Mutual. “Our interest, our ability to influence anything, ends at the door.”

But that hasn’t stopped critics from calling the funding deal a classic conflict of interest.

A six-month Texas Tribune and Austin American-Statesman investigation reveals a series of troubling issues with the chummy partnership — including an absence of written procedural safeguards, a lack of awareness of terms and conditions in the contract authorizing the relationship, and what some say are inappropriate statements made on social media by the lead prosecutor of the unit.

Investigative Findings

“He who pays the fiddler sets the tune,” said Aviva Abramovsky, a law professor at Syracuse University and former chair of the Association of American Law Schools’ insurance law section. “What makes it problematic, particularly in an insurance case like this, is it’s only for this company. They’re the only ones who get private justice. And that’s unfair.”

Kyees, who started working at age 13 and went into the oil fields of the Permian Basin before he could finish high school, isn’t shy in describing his feelings about the deal between the insurer and local prosecutors.

After engaging in the fight of his life to clear his name and healing from the humiliation of an arrest, Kyees prevailed in his criminal case and ultimately obtained a settlement in a malicious prosecution lawsuit. But he remains embittered.

Travis County prosecutors “just take whatever Texas Mutual hands them,” he said in an emotional June interview. “I don’t think an insurance company should have that much power to do people like that — just treat them however they want to and then have district attorneys just taking their word for it.”

Unique arrangement, even as trend grows

Funding deals allowing insurance companies to finance the costs of fraud investigations have blossomed around the nation in recent decades as lawmakers look for ways to help cash-strapped prosecutors pursue complex crimes that ultimately cause premiums to rise for everyone.

But typically those financing schemes rely on pooled or industrywide assessments — with multiple insurance companies paying taxes or fees into a government fund. A public agency then disburses the money to state or local prosecutors.

Such arrangements in Massachusetts, California and other states have drawn criticism from defense lawyers and legal scholars who say the prosecutions lean too heavily in favor of insurer interests while offering too few protections for defendants.

Colorado’s government-run workers’ compensation provider once had a similar arrangement with the state attorney general’s office, but it was replaced in 2012 with pooled funding from all insurers, officials say.

None of the myriad public-private partnerships examined by the Tribune and the Statesman are as direct and intimate as the one in the Texas capital. In Travis County, the arrangement is singularly focused on one company: Texas Mutual makes the referrals, provides the investigators and directly pays all the bills. At one time the company even provided office space for the lead prosecutor. The Travis County DA has statewide authority over such cases because Texas Mutual is headquartered in Austin.

Prosecutors say Texas Mutual gets special treatment because of its history as a state-created entity, but the Legislature turned it into a regulated mutual insurance company — owned by policyholders — in 2001, and it’s no longer a state entity “for any purpose.”

Still, in exchange for guaranteed payments from Texas Mutual of more than $400,000 a year, the Travis County district attorney’s office prosecutes alleged “crimes committed against the company,” according to their contract.

Justin Dehn, The Texas Tribune

Contract provision goes unread

Signed more than a decade ago by then-Travis County District Attorney Ronnie Earle, the contract as written seems to establish parameters for the privately funded unit’s use of state prosecutorial power.

“Special emphasis will be given to major fraud, i.e., large premium and health care fraud cases,” the contract says. Not included in the “major fraud” category are the low-dollar worker cases, which often bring in less than $5,000 in restitution.

The assistant DA in charge of the unit and the head of investigations at Texas Mutual both acknowledged in interviews that they’d never read the entire contract. Both of them were surprised to see a copy of the contract presented to them by the Tribune and the Statesman, and each said they don’t operate under those tenets.

They simply prosecute every viable case.

“I’m not aware of that provision in the contract. A 2004 contract? No,” Riley said. “We’re reporting 100 percent appropriate emphasis in every area.”

“Is that within the agreement? I’ve never seen it,” echoed Assistant District Attorney Donna Crosby, head of the Texas Mutual-funded unit. “That not how I focus on it. I just do everything they bring over here that’s a case.”

In a written statement issued after Riley’s interview, Texas Mutual General Counsel Mary Nichols pointed out that the contract gives prosecutors the discretion to “prosecute when warranted any alleged criminal violations” against the company.

Repeated phone calls placed to Earle, the former district attorney who struck the funding deal with Texas Mutual, were not returned.

The company’s prosecutor

The joint Tribune/Statesman investigation found that the overwhelming majority of cases referred to the division, called the Travis County Workers’ Compensation Fraud Unit, involve allegations of fraud by individual workers known as “claimants.” In a 2006 annual report, Texas Mutual estimated that 88 percent of its fraud cases involved claimants, some of them paying only a few thousand dollars in restitution, and nearly 80 percent of the pending indictments as of this spring involved alleged fraud by workers.

Both the company and the DA’s office point to an exceptionally high rate of success. The review by the Tribune and the Statesman found one dismissal (the Kyees case), two not-guilty verdicts, six guilty verdicts and a large number of plea agreements.

Case Studies

Texas Mutual Insurance Company and the Travis County district attorney’s office say their long-existing financial agreement benefits Texas businesses by cutting down on costly fraud. But critics claim this relationship puts too much power in the hands of a single private company. Here are some cases Texas Mutual has touted in press releases as big wins — but which defense attorneys and critics say were unfairly prosecuted.

Case Studies


Texas Mutual alleged the small trucking company based in Vidor in Southeast Texas was improperly paying lower premiums by classifying some drivers as independent owners and operators.

In 2013, a jury found the company guilty of workers’ compensation fraud. Ramco paid $15,567 in restitution to Texas Mutual and a $15,000 fine and court costs.

Yet attorneys and experts who testified for the company say the case is an example of how Texas Mutual treats simple legal misunderstandings as criminal cases.

Betty Blackwell, Ramco’s lawyer, said her client believed it was legal to not offer workers’ compensation insurance to its truck drivers because they were independent contractors who had private insurance. Dennis Templeton, Ramco’s insurance agent, said the contractors shouldn’t have been counted in premium calculations because Texas Mutual wasn’t liable for any injuries they incurred.

Templeton also noted that Ramco’s previous provider of workers’ compensation insurance, AIG, had raised similar concerns but dropped the matter after Ramco explained its business structure.

Texas Mutual and Travis County’s prosecution of the same issue “was a farce,” he said. “If it were any other insurance company in the United States, that would not have been a criminal proceeding.”

Tim Riley, head of investigations at Texas Mutual, said his company “didn’t influence anyone” to obtain the guilty verdict.

Case Studies

Glenda Howell

In 2014, Texas Mutual brought fraud charges against G&M Construction, a road repair company, and owner Glenda Howell for allegedly misrepresenting the company’s operations and payroll. The company pleaded guilty and paid court costs of $224 and a $50 fine. The case against Howell was dismissed when she paid $16,000 in restitution to Texas Mutual.

Howell did not return phone calls, and her attorney, Frank Bryan, declined comment. But workers’ compensation attorney Brad McClellan, who is familiar with the case, said it represented a legal strategy in which the Travis DA indicts both individuals and a corporate entity as a tactic to leverage restitution payments to Texas Mutual.

McClellan said in these scenarios the individual who gets indicted often concludes it’s not worth spending thousands of dollars on legal fees and instead will settle for a negotiated amount of restitution.

Prosecutors say they only pursue valid criminal cases. Texas Mutual declined to comment.

Case Studies

Mark Helm

Texas Mutual alleged in a press release that Mark Helm, owner of a construction company, falsely listed subcontractors as contract laborers, which allowed him to pay lower premiums. Helm pleaded guilty to receiving workers’ compensation insurance under false pretenses as part of a deal and paid more than $227,000 in restitution to Texas Mutual. He was placed on eight years of probation.

Helms’ attorney, Sam Bassett, said the criminal case centered on the gray area of whether certain subcontractors should be classified as employees. He said that Texas Mutual and the DA’s office are criminalizing a widespread practice in the construction industry and that other counties are leaving the matter to civil courts to resolve.

“I think it’s a little unusual in the sense of one insurance company is the one we’re always dealing with,” he said. “I can’t imagine this isn’t an issue on every construction project in Texas.”

Texas Mutual said fraud by use of subcontractors can cause “great harm” to workers and the industry and the grand jury “appears to have agreed with us.”

Case Studies

Larry Wallace

Larry Wallace, an insurance broker, was accused of “making false statements” to Texas Mutual about the number of workers employed by a construction company he sold policies to, which had the effect of decreasing the amount in premiums his client had to pay.

In a request to have the case dismissed, Wallace’s lawyer, Janet Prueitt, accused Donna Crosby, the prosecutor who heads the Texas Mutual-funded unit, of intentionally withholding evidence and insisting her client provide an interview without an attorney present, in violation of Wallace’s right to counsel. Crosby denied these allegations and a judge did not grant Prueitt’s request.

But the jury believed Wallace when he said he’d only been making a good-faith effort to help his client save money using common, legal business structures. He was found not guilty.

“There was no intent on his part to defraud anybody,” Prueitt said.

Under the terms of the contract, the unit does not pursue complaints that don’t involve fraud against Texas Mutual, nor has the district attorney’s office ever prosecuted Texas Mutual Insurance.

To critics, this unique relationship gives Texas Mutual a hammer it can hold over the heads of the people it insures or hires — one no other insurance company in Texas has. Given the complexity of the workers’ compensation system, a plea deal is often the only way out, they argue.

Betty Blackwell, who represented a Southeast Texas trucking company prosecuted by the Texas Mutual-funded unit, accused the giant insurer of using the criminal justice system to collect debts it couldn’t get in the normal dispute resolution process or in state civil court.

“It doesn’t pass the stink test. It just feels bad,” she said. “It smells bad that a particular corporation can have a special arrangement with the DA’s office. Instead of seeking a civil arrangement, they get the DA to get their money for them.”

Both Texas Mutual and the Travis County DA’s office say the funding agreement has nothing to do with gaining a financial advantage and everything to do with policing fraud, whether it’s perpetrated by workers, doctors or employers.

“They do not go into the Texas Mutual justice system,” Riley, the Texas Mutual official, said. “They go before a Travis County grand jury like everyone else. They go before Travis County judges like everyone else. … So there’s no conflict of interest, because we have no control when it goes into the criminal justice system.”

That’s not how Roy Kyees and his lawyers see it.

Conflicting doctors, confused patient

A lifelong West Texan, 52-year-old Kyees (pronounced “keys”) has been in manual labor jobs most of his life. He began cleaning out laundromats when he was 13, then graduated to grocery sacker when he got old enough.

“As soon as I turned 18, I quit school and went into the oil field,” he said.

In January 2006, while working for the Midland-based oil field services company Selman & Associates, Kyees was in New Mexico installing a satellite dish that allows drillers to keep tabs on well activity in remote locations.

His foot twisted on the sandy earth and he felt a pull in his back, then fell down.

When Kyees told his chiropractor he’d hurt himself at work, the chiropractor directed him to file a workers’ compensation claim. Kyees had made workers’ compensation claims previously in his quarter-century in the oil patch, but generally when he got hurt at work he said he paid his own medical bills to avoid the hassle.

Often in workers’ compensation cases, multiple doctors are brought in to settle disputes – and what they decide can dramatically increase or decrease a worker’s benefits.

Over 15 months, four doctors who evaluated Kyees disagreed on the exact diagnosis of his lower back injury and whether more treatment would improve his condition. Kyees said he received confusing instructions about what benefits he would receive.

In an email to his lawyer on Nov. 8, 2006, 10 months after the original accident, Kyees confessed that the conflicting advice was flat-out befuddling.

“I am really confused with all of this and would like for you to explain what will happen next,” Kyees wrote. “All I ever do is what they tell me and go see one doctor after another and they all say something different. So please explain the process to me.”

While Kyees was wrangling with Texas Mutual over his diagnosis and benefits, he got a new job, making lower pay but performing less strenuous work, as one doctor had recommended.

That’s where the trouble started.

Texas Mutual contended Kyees never told the company he returned to work and improperly cashed benefit checks the company never should have sent him. Kyees and his lawyers say they notified the company both in writing and on the telephone that he had gone back to work and that the amount he was owed kept fluctuating as the different doctors weighed in.

Unbeknownst to Kyees, Texas Mutual, which claimed in court filings that it didn’t have the letter, turned his case over to its internal fraud investigators as a suspicious claim.

More than a year lapsed before Kyees learned — through certified mail from Austin, a city he says he he’d never stepped foot in — that there was a warrant for his arrest in faraway Travis County.

“I wanted to whup somebody,” Kyees said. “I wanted to find out why they did this.”

It quickly became apparent to his attorneys that Texas Mutual and the prosecutors it funds believed Kyees was concealing his employment to steal workers’ compensation benefits from the insurer.

Once Kyees’ attorney, Mark Cevallos, gave the Travis County district attorney’s office a copy of a November 2006 letter notifying Texas Mutual of Kyees’ new job, prosecutors dismissed the criminal case.

Questions, resentment linger

Today, Crosby, head of the privately funded prosecutorial unit, contends that a subordinate dismissed the case against her wishes. She still questions the authenticity of the letter.

“It was done against my instructions,” Crosby said. “I mean, I just wouldn’t have bought it. That’s just me. I’m a more of a cynical prosecutor.”

Texas Mutual also continues to question whether the letter was ever really sent, though in court records a company representative said he had not searched the claim file for it.

Riley, the head of fraud investigations at Texas Mutual, said Kyees went through the same process other defendants face when they are charged with a crime in Travis County. And he said the outcome of the Kyees investigation proved his point — even though a worker got thrown in jail over it.

“It got all the way through grand jury, and then evidence comes up for the first time that causes the assistant district attorney to doubt his case and he dismisses it,” Riley said. “That’s the way it’s supposed to work.”

Kyees looks at what happened to him through a very different lens.

He recalls bitterly the stigma of his arrest, how he was fingerprinted and handcuffed and put in leg chains. The only time he’d been to the jailhouse before was to visit a childhood friend who had become a deputy sheriff, he said.

“He saw me being carted in … my feet and hands cuffed,” Kyees said. “He told me he nearly passed out when he saw me being carried in there.”

The Kyees Case: Lawyers Weigh In

The case against Roy Kyees came down to a single slip of paper: A Nov. 13, 2006, letter from Kyees’ attorneys informing Texas Mutual Insurance that their client had returned to work. Once the prosecutor was provided a copy of the letter, the charges were dropped. Yet almost nine years later, both sides are still fighting about the document’s authenticity. Here’s what they had to say in statements to The Texas Tribune and the Austin American-Statesman:

The Kyees Case: Lawyers Weigh In

Full written statement from Texas Mutual General Counsel Mary Nichols

“Texas Mutual referred Mr. Kyees to the district attorney because Texas Mutual had a reasonable belief, based on information supplied by Mr. Kyees’s former employer, that insurance fraud might have occurred. The district attorney initially agreed, as did the grand jury. In Mr. Kyees’s case, the later decision to dismiss the charges was that of the district attorney, who has the responsibility of deciding whether to pursue prosecution.

“After Mr. Kyees was arrested for insurance fraud in 2008, his workers compensation lawyer gave the district attorney a letter dated Nov. 13, 2006, purportedly sent to Texas Mutual on that date, that informed Texas Mutual that Mr. Kyees had returned to work on Aug. 16, 2006. Multiple Texas Mutual employees conducted an exhaustive search of our claim files for this letter.

“Texas Mutual has found no indication whatsoever that the letter was ever received.

“The copy of the letter presented to the district attorney in 2008 also lacked any evidence of delivery, such as fax and email notations, which would have usually been present. Mr. Kyees’s lawyer’s billing records do not reflect any efforts made to notify Texas Mutual that he had returned to work.

“Under questioning, Mr. Kyees’s lawyer said that he could not supply any confirmation of when the letter was prepared or that the letter was actually sent because, after a ‘virus attack,’ his office ‘wiped’ his computer ‘clean’ of any relevant data. He said that his office then ‘rebooted’ it and it continued to function for a while, but in 2008 it was ‘sent off to the shredder.’ Texas Mutual therefore had no opportunity to examine the facts surrounding the purported transmittal.

“The letter purportedly sent from Mr. Kyees’s lawyer also failed to inform Texas Mutual of the amount of earnings from the new employer, even though the law requires disclosure of this information so that benefits checks can be adjusted to the correct amount.

“But even if Texas Mutual had received the letter on Nov. 13, 2006 (three months after Mr. Kyees started working a new job) Mr. Kyees nonetheless continued to cash the weekly disability checks while working another job. Every check he got warned on its face that he must notify his adjuster if he received any income after his injury. Mr. Kyees was also represented by a lawyer during that time — the same lawyer who also defended Mr. Kyees in the criminal case and who produced the letter after Mr. Kyees’s indictment.

“It thus appears that Mr. Kyees had every opportunity to do the right thing, but for whatever reason he chose to keep the disability checks. That consequences might result was clear all along.”

The Kyees Case: Lawyers Weigh In

Response from Kyees lawyer Mark Cevallos based on interviews

In an interview, Cevallos called Texas Mutual’s claim that it conducted an “exhaustive search” for his firm’s 2006 letter about Kyees’ return to work a direct contradiction of Texas Mutual’s sworn court testimony.

“This is the first time TMI has ever come close to saying they searched for the letter,’’ Cevallos said. “Their own designated representative testified in his deposition that he never looked through the entire file.”

Cevallos was referring to the sworn deposition from Terry Eliasen, whom Texas Mutual designated as its official spokesman in Kyees’ malicious prosecution case against the company.

In his testimony, Eliasen said: “I have not reviewed the claim file to see if the letter is in there.’’

The allegation that the company did not make a diligent search to find the letter was a centerpiece of Kyees’ malicious prosecution lawsuit against Texas Mutual. During that battle, Cevallos said Texas Mutual made a “reasonable request” for computer records that might have produced an electronic copy of the Nov. 13, 2006, letter, but no such records existed by the time they asked for it — years later. He said the letter was prepared on a computer before the firm got remote cloud storage and fell prey to a virus that wiped out the hard drive.

Cevallos said he and two other partners in his firm all vouched to the existence of the letter. He said if he and his partners were lying about it they could open themselves up to serious criminal charges and disbarment.

“They’re trying to argue that we made up this letter. They didn’t do that when we are in the suit. They didn’t do that a week from trial when they were offering us money to settle the case,’’ he said. “They wait until a newspaper reporter starts digging around. Nothing Texas Mutual does surprises me, but it’s just silly.”

Cevallos pointed out that Kyees, his wife, Teresa, and lawyer Royce Bicklein all testified under oath that they made a follow-up phone call to Texas Mutual after the letter was sent and left word that Kyees had returned to work.

Kyees testified under oath that he notified Texas Mutual that it had sent him too much money when he got a lump sum check in November. His attorneys described their recommendation to him as a no-brainer: Kyees was still deemed eligible to receive benefits for his impairment — even if he had a new job. He was still entitled to weekly income.

Cevallos said Texas Mutual had made what was known as a “gratuitous overpayment,” not an uncommon occurrence, and the company, following typical protocol in such case, could simply lower the amount it was paying him weekly. They still had an ongoing dispute over the extent of the injury, so benefits could go up or down.

His lawyers told Kyees to cash the checks, and he did.

Because he was charged with a felony, Kyees lost his concealed handgun permit. He had to check in with the bail bondsman every Sunday for over a year and had to inform them anytime he left town.

“They can make people’s lives a living hell, basically,” Kyees said, his voice cracking. “It turns you upside down is what it does.”

Looking back, Kyees said it seemed to him the whole time that the prosecutors were in Texas Mutual’s “back pockets.”

“Why is a district attorney getting paid by the private insurance company?” he asked. “They just take whatever Texas Mutual hands them, bits and pieces of any basic case, and they can word it, say it however they want to make people look guilty.”

‘Make them think twice’

Kyees eventually sued for malicious prosecution and Texas Mutual paid him a settlement of just under $10,000, court records show. Kyees said the company sought to impose a non-disclosure agreement on Kyees, but he refused.

He was lucky that he filed his civil lawsuit against Texas Mutual before February 2015, when the Texas Supreme Court ruled that workers’ compensation carriers can no longer be sued for malicious prosecution. The only remedy available now to someone in Kyees’ shoes is to file a complaint with the state’s Division of Workers’ Compensation — a process that doesn’t produce a dime for the defendant even if the agency substantiates the complaint and fines the company.

It still bothers Kyees that he has an arrest record, that he lost his weapons permit and that he still has to explain all of this to friends, family members and, above all, to future employers. Even though the case was dismissed, he still has to disclose his scrape with the long arm of the Travis County DA on job applications.

But he’s proud that he fought back and that Texas Mutual, as he put it, “bit off more than they could chew” when the insurer turned him in to its paid government prosecutors.

“I was in for the long haul. I was going to fight them tooth and nail,” he said. “I figured if they can do this to me, they’ll do it to anybody they can. I figured I’m going to try to put a stop to it now, or make them think twice before they do this to somebody else.”

Liz Crampton contributed to this report.

Disclosure: Texas Mutual Insurance is a corporate sponsor of The Texas Tribune. A complete list of Tribune donors and sponsors can be viewed here.

More in this series

A Brash Prosecutor

The head of Travis County’s Texas Mutual-funded insurance fraud unit has an independent streak — and a public personality.

Insuring Success

Forged amid crisis, an exclusive funding deal between Texas Mutual and the Travis County DA’s office lingers.


The Texas Tribune and the Austin American-Statesman spent six months investigating a unique partnership between Texas Mutual Insurance and a special prosecution unit inside the Travis County district attorney’s office. This website was developed by Jolie McCullough and designed by Emily Albracht and Ben Hasson.