CRIME

Virginia Tech students defrauded by Texas insurance company, CEO

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ABINGDON, Va. (AP) - A Texas company and its chief executive officer pleaded guilty Wednesday to conducting a health insurance scheme that illegally inflated premiums for Virginia Tech students.

GM-Southwest Inc. and its CEO and former owner, John Paul Gutschlag Sr., both pleaded guilty to one count of racketeering and two counts of money laundering. Wire fraud, mail fraud and conspiracy charges in a 57-count federal indictment returned in April were dropped in a plea agreement.

The Frisco, Texas-based company is a third-party administrator of student health insurance. Major insurance carriers provide coverage but pay GMS a fee for collecting premiums and paying claims. The indictment said that by overstating claims, GMS was able to charge higher premiums and discourage competitors from bidding to provide the service.

Gutschlag, 73, and the company admitted overstating claims at Virginia Tech by more than $1 million from 2003 through 2010 to boost profits.

"Mr. Gutschlag and GM-Southwest bilked Virginia Tech and thousands of the university's students out of more than a million dollars," U.S. Attorney Timothy J. Heaphy said in a written statement. "This conspiracy was sophisticated and wide-ranging and caused considerable harm to its victims."

The plea agreement requires $1.2 million in restitution to Virginia Tech and the students and forfeiture of an additional $1.2 million to the government.

Gutschlag faces up to 20 years in prison on the racketeering charge and 10 years on each of the money laundering counts. Sentencing is set for Jan. 7.

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