I-Team: Conspiracy, Fraud Trial of Lawyer Underway (Part 2) - 8 News NOW

George Knapp, Chief Investigative Reporter

I-Team: Conspiracy, Fraud Trial of Lawyer Underway (Part 2)

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Howard Awand Howard Awand
Noel Gage Noel Gage
Melodie Simon, a teacher at Cheyenne High School, was ;left paralyzed after back surgery. Melodie Simon, a teacher at Cheyenne High School, was ;left paralyzed after back surgery.

Jury selection has begun in what federal prosecutors hope will be the first of many prosecutions of local doctors and lawyers. It's the result of a massive investigation that stretched over five years. Lawyer Noel Gage is the first defendant to stand trial for allegedly ripping off his own clients.

Only two people have been indicted so far, attorney Noel Gage and alleged middle man Howard Awand but federal documents make it clear the case is much bigger than just these two. The government is accusing the men of conspiracy, fraud, witness intimidation, and of fleecing their own clients.

Read the second superseding Criminal Indictment

See the names of doctors and lawyers who received supoenas

It is an incredibly complicated case, even for the participants, so strap yourself in and hang on.  Attorney turned criminal defendant, Noel Gage has been telling television viewers for months in his commercials that insurance companies are somehow responsible for the federal investigation that led to his indictment.

Two other prominent attorneys Bob Vannah and Robert Eglet, believed to be primary targets of the federal probe, have been saying the same thing.

Have an opinion about this case, tell us in our blog.

In a secretly recorded tape, Vannah boasts of why insurance companies hate him.

Bob Vannah: Last year, "I took state farm for about $100 million. Literally, $100 million. I mean, I just devastated them."

The insurance industry says it tried for years to get the FBI to go after the alleged cabal that's now in the crosshairs, and for a simple reason -- the number of legal claims filed in injury cases southern Nevada is 63% higher than the national average, twice as high as northern Nevada.

It's like a tax on everyone who lives here, the industry says. "100's of millions of dollars over the past two years," said Bob Feldman, Nevada Insurance Council.

Federal prosecutors agree that insurance companies have been pummeled by Gage and nearly two dozen other lawyers and doctors alleged to be part of the conspiracy, but that the real victims are the little guys.

"The victims here were, in fact, clients. They were defrauded of the honest services of their attorneys," said Steve Myrhe, Assistant U.S. Attorney. To understand how the alleged cabal operated, consider one of the cases listed in the indictment, that of Melodie Simon, a teacher at Cheyenne High School who underwent back surgery in 2000.

Doctors Mark Kabins and John Thalgott operated, but something went wrong. Simon is permanently paralyzed from the waist down. She was put in touch with so-called medical fixer Howard Awand, the suspected middle man in the conspiracy. Awand met with Noel Gage about the Simon case.

A letter to Dr. Kabins form his attorney acknowledges that Gage felt he could sue Kabins and Thalgott but offered to let them off and blame Simon's paralysis on anesthesiologist Dan Burkhead. The lawyer advised Kabins against making a deal with Gage and said the insurance company would not allow it. But Kabins and Thalgott did it anyway.

In a sworn statement to the FBI, Thalgott says he and Kabins met with Gage and Awand without their lawyer. Gage remarked in the beginning it was a quote "meeting that didn't happen". In the meeting, Gage and Awand cut a deal to let Kabins and Thalgott off if they helped build a case against Dr. Burkhead. Days later, Awand sent a confidential letter to Kabins, telling Kabins that both he and Gage would keep their word, then asking for help in proving where the anesthesiologist screwed up.

Melodie Simon sued Dr. Burkhead and was awarded $7 million, money to last the rest of her life. The FBI thinks Gage and Awand greatly inflated Simon's medical bills because it meant more money for them. Out of the $7 million, Gage made three payments to Awand totally $1.3 million, and another payment of $430,000 to a doctor who helped the scheme, all without telling Melodie Simon the real reason for the payouts.

More importantly for Simon, Dr. Kabins and Dr. Thalgott, who had some responsibility according to Gage, were covered by $6 million in malpractice insurance, money that wasn't paid to Simon because her lawyer cut a backroom deal, according to the government.

As the money rolled in, the conspirators got even busier, the government says. Awand sent a letter to Dr. Kabins in 2002 saying he referred so many cases he had lost track of them. Two doctors had second thoughts and went to the government, John Thalgott and Ben Venger. Both will testify.

But even after the word surfaced about an FBI probe, some suspects stayed the course. In a secretly recorded tape, lawyer Bob Vannah tells Dr. Venger it will be business as usual.

Bob Vannah: "We're gonna make sure we work out something. You don't have to worry about me, but I want to make sure you're safe bringing me cases. You know, obviously I don't plan to stop doing that so, um, I don't know if it's cash, but we can work out something. The business like that, that's going to be gigantic."

Vannah was right about that. Lawmen say the group took in hundreds of millions of dollars over a six-year period. Venger and Thalgott bailed out though and will be key witnesses for the prosecution. Defense attorneys, including Gage's lawyer Tom Pitaro, think the whole thing was instigated by the insurance industry. 

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